Measuring Terminable Postretirement Obligations

Jeffrey Petertil

North American Actuarial Journal, 2005, vol. 9, issue 1, 112-119

Abstract: New approaches are needed to value benefit plans subject to unilateral changes or termination. The paper focuses on postretirement health benefits, but the thesis may be relevant to any flow not guaranteed by law or accumulating funds.Retiree health benefits have usually been extended to participating active employees only in concert with a reserved right by the plan sponsor to control the design and, by implication, the cash flow. Over the course of the last fifteen years, this reserved extension of benefits has almost invariably led to reductions in benefits, when compared to the plan of benefits at an earlier period. In most cases, such reductions were anticipated under the circumstances that came to prevail (high health care cost increases), but were not taken into account by most of the projection and discounting methods of the time.Current actuarial and accounting methods generate present values for terminable retiree health plans that have little credibility as measures of the beneficiary’s asset or the sponsor’s liability. Improvements are needed that will expand the actuarial toolbox and provide solutions to economic and accounting problems.This paper provides a basis for discussion of assumptions that are appropriate when the plan sponsor can unilaterally and dramatically change future cash flows. The paper discusses how actuaries might best approach measurement situations where further plan reductions, or outright terminations, are to be anticipated. It introduces refinements and briefly discusses how each would fit with the usual actuarial model and how differences might affect behavior. These ideas are related to financial economics and the Bader-Gold paper “Reinventing Pension Actuarial Science.” Before concluding, the wider topic of discount rate selection is briefly addressed.

Date: 2005
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/10920277.2005.10596187 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:uaajxx:v:9:y:2005:i:1:p:112-119

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/uaaj20

DOI: 10.1080/10920277.2005.10596187

Access Statistics for this article

North American Actuarial Journal is currently edited by Kathryn Baker

More articles in North American Actuarial Journal from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().