Blogging Employee Benefits

March 15, 2006

Accounting for OPEB Split-Dollar Arrangements

Filed under: Accounting, OPEBs — Fuguerre @ 5:25 pm

At its meeting tomorrow, the FASB Emerging Issues Task Force will address employers’ recognition of liability and relater compensation costs for endorsement split-dollar life insurance policies that provide an employee benefit that extends to postretirement periods. [EITF Issue No. 06-4] The EITF will seek to settle a diversity of practice for such arrangements –

  • View A – Liability – An employer would recognize a liability for future benefits based on the substantive agreement with the employee, as prescribed under APB 12 or SFAS 106.
  • View B – Liability – An employer would recognize no liability for future benefits or premiums, essentially viewing benefit obligations to have been settled by the purchase of the life insurance policy.

The EITF split-dollar project is separate from FASB’s major pension/OPEB project; and the EITF’s discussion document does not raise any implications between the two separate projects. However, if View A is endorsed, requiring a liability for endorsement split-dollar life insurance policies, then for any postretirement life insurance plans covered under SFAS 106 that liability would be taken into account for the OPEB funded status that would be recognized through a charge or credit to other comprehensive income (i.e., as a component of shareholder equity) upon the effective date of the pension/OPEB project.

If the EITF recommends the acceptable accounting method, then it will also suggest an implementation procedure, which would then be effective upon ratification by the Board.

1 Comment »

  1. At its March 16 meeting, the EITF failed to reach agreement on the appropriate accounting for split-dollar life insurance used for postretirement benefits, but then failed to reach agreement to refer the issue to the Board, then failed to reach agreement to remove the issue from the EITF agenda. Although it was not certain that sufficient additional information or justification that might settle the issue might be easily be raised, the topic remains on the EITF agenda for further proceedings at some undetermined future meeting.

    Comment by Fuguerre — March 17, 2006 @ 7:49 am

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