The cost of providing medical benefits to retirees is increasing. These costs are measured by the cash payment to provide benefits to retirees, as well as the accounting accrual of future payments. Many employers use pay-as-you-go funding, which involves paying for current retiree benefits and has no advance funding. This leaves the company with a large unfunded liability on its balance sheet and creates a mismatch between the current capacity of the company (as measured by employee population) and payments to a sometime larger retiree population. Ultimately leading to a large accounting (FAS 106) cost creating a drag on operating earnings.
Advanced funding can improve the balance sheet, while providing operating earnings and cash management. Employers can take advantage of several funding vehicles with:
- Varying levels of allowable contributions
- Asset flexibility
- Tax efficiency
Spring utilizes many funding vehicles including:
- 401(h) accounts
- Voluntary Employee Beneficiary Associations (VEBAs)
- Trust Owned Life Insurance (TOLI)
- Trust Owned Health Insurance (TOHI
Spring can examine the accounting and cash effects of these vehicles, while maximizing future flexibility given the unknown future status of private plans and government programs.