Understanding Postretirement Benefit Accounting

Paul N. Wilmesmeier, College of Saint Benedict/Saint John's University


This thesis centers around the new Statement of Financial Accounting Standards, FAS 106. The Financial Accounting Standards Board (FASB) began researching postretirement healthcare benefits in 1979, and unanimously approved FAS106 on December 19, 1990. This statement will require employers to change from a cash basis to an accrual basis of accounting for postretirement benefits. The first part of this thesis looks at the rising costs and liabilities that caused postretirement benefits to be such an important issue. The second part discusses the FASB's research process, the requirements of FAS 106, employers' objections to these requirements, and the FASB's defense of the statement. The third part of the thesis predicts the initial effects of FAS 106 on financial statements and the stock market, and companies' responses through plan changes and prefunding.