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Other Postemployment Benefits (OPEB)

Moneyzine Editor
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Moneyzine Editor
2 mins
September 20th, 2023
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Definition

The term other postemployment benefits refers to a number of employer-sponsored programs a company may provide to former employees. Other postemployment benefits can include vision, dental and healthcare insurance, prescription medications, life insurance, as well as legal services. As the name implies, OPEB does not include the costs associated with defined benefit pension plans or other sources of retirement income provided by employers.

Explanation

In addition to offering existing employees with a wide array of benefits, companies oftentimes provide former employees with what are referred to as other postemployment benefits, or OPEB. Accounting guidance such as FASB Statement No. 106 and GASB Statement No. 45 classify these costs as postemployment benefit plans other than pension plans.

These benefits are earned by employees through their service with the company, and may be provided to the employee or their beneficiary after they've retired or otherwise separated from the business. Accounting experts believe constructive obligations such as OPEB are earned by employees each year as part of their overall compensation plan. Even though these benefits are not received until after active employment with the company has terminated, the cost of these benefits are considered part of the company's operating costs today.

In practice, OPEB costs are actuarially-determined and will flow to the income statement, while the assets set aside to fund these benefits will appear on the balance sheet as a non-current liability. Annually, companies will review the assumptions used by the actuarial and the performance of the fund's investments to see if there is an unrealized gain or loss on the assets in OPEB. Any such unrealized gain or loss is shown as an adjustment to net income on the company's consolidated statement of comprehensive income.

Related Terms

stockholders' equity, retained earnings, comprehensive income, accumulated other comprehensive income

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