Although on the surface OPRBs are similar to DBPPs they have characteristics

Although on the surface oprbs are similar to dbpps

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Although on the surface OPRBs are similar to DBPPs, they have characteristics that necessitate different accounting considerations and that have been the source of considerable controversy: 1. Defined benefit pension payments are determined by formula, whereas the future cash outlays for OPRBs depend on the amount of services, such as medical care, that the employees will eventually receive. Unlike pension plan payments, there is no cap on the amount of benefits to be paid to participants. Hence, the future cash flows associated with OPRBs are much more difficult to predict. 2. Unlike defined pension benefits, additional OPRB benefits cannot be accumulated by employees' OPRBs with each year of service. 3. OPRBs do not vest. That is, employees who leave have no further claim to future benefits. Employees have no statutory right to vested health care benefits. Defined benefits are covered by stringent minimum vesting, participation, and funding standards, and they are insured by the Pension Benefit Guaranty Corporation under ERISA. Health and other OPRBs are explicitly excluded from ERISA. The FASB ASC 715 guidelines stipulate that periodic postretirement benefit expenses comprise the same six components as pension expense. Nevertheless, there are measurement differences owing to the foregoing differences between the characteristics of OPRBs and those of DBPPs. The determination of the return on assets and the amortization of gains and losses for OPRBs and DBPPs are the same. We concentrate on those components that are treated differently. Service Cost The service cost component of net periodic pension cost is that portion of the ending projected benefit obligation attributable to employee service during the current period. The basis for computing OPRB service cost is the expected postretirement benefit obligation (EPBO), which is defined as the actuarial present value of the total benefits expected to be paid assuming full eligibility is achieved. 8 Measurements included in the calculation of the EPBO include estimated effects of medical cost, inflation, and the impact of technological advancements and future delivery patterns. The service cost component for OPRBs is the ratable portion of the EPBO attributable to employee service in the current period.
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Interest Interest is calculated by applying the discount rate by the accumulated postretirement benefit obligation (APBO). The APBO is that portion of the EPBO attributable to employee service rendered to the measurement date. Once the employee is fully eligible to receive OPRB benefits, the APBO and the EPBO are equivalent. Amortization of Prior Service Costs For OPRBs, prior service cost is the increase in the APBO attributed to an increase in benefits to employee service rendered in prior periods. SFAS No. 106 required that prior service cost be recognized over the life expectancy of the employees when most participants are fully eligible to receive benefits. If employees are not fully eligible, prior service cost is amortized to the date of full eligibility. OPRB gains
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