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 advanced 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. This mismatch leads to a large accounting (ASC 715) cost creating a drag on operating earnings.
Advanced funding can improve the balance sheet, while improving operating earnings and cash management. Employers can take advantage of several funding vehicles with:
- Varying levels of allowable contributions
- Asset flexibility
- Tax efficiency
Spring has developed advanced solutions in funding retiree medical benefits. Our team has expertise in all forms of retiree medical funding including use of a Voluntary Employee Beneficiary Association (VEBA) trust and investments in Trust Owned Life Insurance (TOLI) and 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.
Spring has decades of service in the realm of retiree medical funding. In fact, our team made the first U.S. department of Labor application for retiree medical funding through a captive years ago and we haven’t stopped leading and innovating since! Contact us for more information about our retiree medical services.