For OPEB plans, the end of the attribution period is the full eligibility date. At that date, an employee's APBO and EPBO are equal. The full eligibility date is the date on which an employee has rendered all the service necessary to receive all the benefits expected to be received by that employee (including any beneficiaries and dependents expected to receive benefits). This date could precede the employee's expected retirement date, depending on the terms of the plan.
While the full eligibility date is used for attribution, the expected retirement date is used for measurement (expected timing of when benefit payments will commence) of the expected benefits.
In determining the full eligibility date, plan terms that provide incremental benefits expected to be received by an employee for additional years of service extend the attribution period, unless those incremental benefits are trivial. Salary progression and benefit indexation formulas are examples of plan provisions providing incremental benefits. To illustrate, assume an employee is eligible for postretirement life insurance benefits after rendering 10 years of service and attaining age 55, but the amount of insurance benefits earned under the plan are indexed until retirement (e.g., based on final salary at retirement). Even though an employee has met the age and service requirements, the full eligibility date has not yet been reached because the employee earns additional non-trivial benefits each year for salary increases until retirement (see ASC 715-60-55-11
through ASC 715-60-55-13
Question PEB 2-1 addresses measurement and attribution at the full eligibility date.
Question PEB 2-1
An employee is fully eligible for a benefit payable under an OPEB plan at age 55, but his expected retirement date is at age 65. What is the appropriate age to use to calculate the EPBO and what is the appropriate attribution period?
The EPBO should be calculated as the actuarial present value of benefits to be provided beginning at age 65. However, because the employee will be fully eligible for the OPEB benefits at age 55, that is the age that would be used in the calculation of the EPBO (i.e., the actuarial present value as of age 55 of the benefits payable beginning at age 65) and the period to which benefits (service cost) would be attributed. While there would be no additional service cost for an employee beyond age 55, there will be interest cost and potential gains and losses. In other words, all of the service cost component would be recognized by the time the employee is age 55. From age 55 to 65, interest cost would be recognized to accrete the liability to its full balance at the time the employee reaches age 65.
Question PEB 2-2 addresses a question regarding determination of the full eligibility date when there is incremental benefit provided for additional years of service.
Question PEB 2-2
A plan provides single coverage to employees who work for 10 years and attain age 55 while in service and dependent coverage for employees who work 20 years and attain age 65 while in service. For an employee expected to meet the necessary age and service requirements and also expected to have dependents during retirement (even though none may exist today), what is the full eligibility date?
The full eligibility date is the date that employee has rendered 20 years of service and attained age 65.
Example PEB 2-2 addresses the determination of the full eligibility date when there is a graded benefit formula.
EXAMPLE PEB 2-2
Determination of the full eligibility date when there is a graded benefit formula
Consider an OPEB plan with the following benefits:
- 25% of eligible healthcare costs if an employee provides at least 10 years of service
- 50% of eligible healthcare costs if an employee provides at least 20 years of service
- 80% of eligible healthcare costs if an employee provides at least 30 years of service
Employee A was hired at age 32 and is expected to retire at age 60 (with 28 years of service).
Employee B was also hired at age 32 but is expected to retire at age 65 (with 33 years of service).
What is the full eligibility date and attribution period for each employee?
Employee A would be fully eligible for the expected level of benefits (50% of eligible costs) at age 52; that is, when 20 years of service have been rendered. Thus, the attribution period is 20 years, even though the expected service period is 28 years.
Employee B would be fully eligible for the expected level of benefits (80% of eligible costs) at age 62 when 30 years of service have been rendered. The attribution period would be 30 years, even though the expected service period is 33 years.