April 20, 2011

Is It Really Profit if There's Future Retirement Debt?

Justin Katz

Fredric Rolando, president of the National Association of Letter Carriers, might just get to the heart of the pension/retirement issue when he explains the following, by way of arguing that the U.S. Post Office is a profitable enterprise:

Congress requires the postal service to put $5.5 billion of its earnings each year into a separate account to "pre-fund" future retirees' health care insurance far into the future.

No other business or government agency has such a requirement. The postal service won't actually spend the money it puts away for "pre-funding" until many years from now.

Yet it counts as a loss on its balance sheet today.

Whether it's accurate to say that no other organization faces such a requirement (which is also different from saying that none utilize the methods anyway), I don't know. The question that comes to mind is: why shouldn't government agencies and businesses put aside money for benefits to be paid to current employees when they retire? Inasmuch as the payment is obligatory, the expense is being incurred in the present through the continued employment of the worker.

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"why shouldn't government agencies and businesses put aside money for benefits to be paid to current employees when they retire? "

Yeah, isn't that considered a "funded obligation"?

If they weren't doing that, wouldn't it be an "unfunded liability"? Gee, that sounds familiar.

Posted by: Patrick at April 20, 2011 2:11 PM

Governments will tell you they use cash basis accounting, so future expenses aren't recorded until they are paid, even though the liability is incurred today. That's how they have gotten away with their lies about the Ponzi schemes of Social and Medicare.

If a business did that the executives would go to jail. Part of the new ruling class double-standard.

Posted by: BobN at April 20, 2011 7:35 PM

Is that on top of or included in the $8.5 billion they lost last year?

Posted by: Max Diesel at April 20, 2011 8:45 PM

It looks to me that under FASB standard 106, all companies do have to account for retiree health benefits as a liabiltiy on their balance sheets. I believe it was this accounting requirements that really brought to light the impact of automakers' (for instance) liabilities to their retirees.

Posted by: david c at April 20, 2011 10:15 PM

My comment here is the same as my comment on Projo. The excuse offered is that every other company does it. Did your mother never say "If all your friends were jumping off a bridge, would you do that too?"

Posted by: Warrington Faust at April 21, 2011 12:13 PM
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