Retiree Health Benefits: Examples of Employer-Reported Obligations in Selected Industries (29-APR-02, GAO-02-639R). In addition to providing an overview of a company's business operations, the annual reports submitted to the Securities and Exchange Commission present important information on an employer's estimated obligations for postemployment benefits, including retiree health benefits. However, the assumption used to estimate obligations for postemployment benefits vary across companies and are not comparable. Financial Accounting Standards Board guidelines give employers latitude in calculating these obligations. Moreover, changes in companies' benefit offerings or financial stability would likely alter companies' obligations for retiree health benefits. Most employers also reserve the right to change or terminate retiree health benefits. -------------------------Indexing Terms------------------------- REPORTNUM: GAO-02-639R ACCNO: A03204 TITLE: Retiree Health Benefits: Examples of Employer-Reported Obligations in Selected Industries DATE: 04/29/2002 SUBJECT: Employee medical benefits Health insurance Reporting requirements Retirement benefits ****************************************************************** ** This file contains an ASCII representation of the text of a ** ** GAO Product. ** ** ** ** No attempt has been made to display graphic images, although ** ** figure captions are reproduced. Tables are included, but ** ** may not resemble those in the printed version. ** ** ** ** Please see the PDF (Portable Document Format) file, when ** ** available, for a complete electronic file of the printed ** ** document's contents. ** ** ** ****************************************************************** GAO-02-639R GAO- 02- 639R Retiree Health Benefits United States General Accounting Office Washington, DC 20548 April 29, 2002 The Honorable Sam Johnson Chairman Subcommittee on Employer- Employee Relations Committee on Education and the Workforce House of Representatives Subject: Retiree Health Benefits: Examples of Employer- Reported Obligations in Selected Industries Dear Mr. Chairman: As a follow- up to our November 2001 testimony before the subcommittee on trends in retiree health benefits, 1 you requested additional information on the obligations employers face related to retiree health benefits. Specifically, you asked us to provide examples, based on readily available data, of employers? estimates of their future financial obligations for retiree health benefits, particularly in industries that have reported high obligations for these benefits such as airlines, automotive manufacturing, and steel/ metal. To obtain this information, we reviewed publicly available electronic copies of the annual reports that selected large airline, automotive, and steel/ metal companies filed with the Securities and Exchange Commission (SEC). We performed our work in April 2002 in accordance with generally accepted government auditing standards. The annual reports to SEC, which must be filed within 90 days after the end of the company?s fiscal year, provide an overview of the company?s business and include information on employers? estimated obligations for postemployment benefits, including retiree health benefits. However, since factors and assumptions used in estimating obligations for postemployment benefits may vary considerably across companies, they are not comparable. Within guidelines established by the Financial Accounting Standards Board, employers have latitude in how they calculate their postemployment benefit obligations. For example, companies consider factors unique to them, such as employee demographics, retirement rates, health care cost trends, and investment return rates to calculate their postemployment benefit liability. Further, changes in companies? benefit offerings or financial stability would likely alter companies? obligations for retiree health benefits. Nearly all employers reserve the right to modify or terminate retiree health benefits. Reasons that may 1 U. S. General Accounting Office, Retiree Health Insurance: Gaps in Coverage and Availability, GAO02- 178T (Washington, D. C.: Nov. 1, 2001). GAO- 02- 639R Retiree Health Benefits Page 2 influence employers to subsequently curtail such benefits include their health care costs rising faster than expected or their economic condition weakening. Table 1 provides information that 14 employers in the airline, automotive, and steel/ metal industries reported to the SEC regarding their financial obligations for other postemployment benefits (OPEB) in 2001, 2000, and 1999. OPEB represents retirement benefits, including retiree health benefits, but excluding pension benefits that are separately reported. As specified for each company in the table, some companies may provide a dental or vision benefit for retirees separate from their retiree health benefits. In addition, some companies may offer life insurance as a benefit to retirees. Companies include the costs of these additional benefits in their reporting of OPEB obligations. GAO- 02- 639R Retiree Health Benefits Page 3 Table 1: OPEB Obligations (Including Retiree Health Benefits) Reported by Selected Airline, Automotive, and Steel/ Metal Companies OPEB obligations (in millions of U. S. dollars or otherwise specified currency) Company December 31, 2001 December 31, 2000 December 31, 1999 Airline companies American Airlines, Inc. a 2,759 1,708 1,306 Delta Air Lines, Inc. b 2,100 1,780 1,612 c Northwest Airlines Corporation d 647 531 391 UAL Corporation (United) a 2,359 1,706 1,465 US Airways Group, Inc. e 1,440 f 1,241 f 1,162 f Automotive companies Daimler- Chrysler AG g, h 15,095 Euros 12,857 Euros 10,527 Euros Ford Motor Company g 25,433 23,374 19,885 General Motors Corporation i 52,489 49,889 44,683 Steel/ metal companies Alcoa, Inc. a 3,177 2,924 1,687 Bethlehem Steel Corporation a 2,047 1,955 1,820 The LTV Corporation j Late filing- no information for 2001 k 1,524 1,500 National Steel Corporation a 993 f 817 f 751 f United States Steel Corporation a, l 2,555 2,149 1,896 Weirton Steel Corporation a 389 321 309 Notes: Postemployment benefit obligations across companies are not comparable because companies have wide latitude in the assumptions they use to calculate these obligations. GAO- 02- 639R Retiree Health Benefits Page 4 a OPEB obligations include health and life insurance. b OPEB obligations include dental and medical benefits. c Data are for obligations as of June 30, 1999. d OPEB obligations include medical and dental benefits for certain employees who retired prior to 1987, and life insurance benefits for certain retirees. e OPEB obligations include postretirement benefits, which were not specified by the employer in the SEC filing. f Data are for obligations as of September 30 of the respective year. g OPEB obligations include health and life insurance for eligible U. S. and Canadian retirees. h The SEC filing did not provide information about the exchange rate between Euros and U. S. dollars used to prepare the consolidated financial statements. i OPEB obligations include medical, dental, life, and vision benefits. j OPEB obligations are for health care, life insurance, and other insurance benefits. k On December 29, 2000, the LTV Corporation filed for Chapter 11 bankruptcy. On December 7, 2001, the U. S. Bankruptcy Court issued an order that authorized the implementation of an asset protection plan for the shutdown and sale of all integrated steel assets. l As of December 31, 2001, United States Steel Corporation reorganized. United States Steel LLC, a former subsidiary of USX, became United States Steel Corporation. USX Corporation was renamed Marathon Oil Corporation. Prior to this time USX was comprised of two groups: U. S. Steel and Marathon. Sources: Reported in companies? filings with the Securities and Exchange Commission Company available on line at www. sec. gov. (10- K and 10- K405 filings for American Airlines, U. S. Airways Group, Alcoa, and Bethlehem Steel; 10- KT405 and 10- K filings for Delta Air Lines; 10- K and 10- K (amended) filings for Northwest Airlines, UAL Corporation, and United States Steel Corporation; 10- K filings for Ford Motor, General Motors, LTV Corporation, National Steel Corporation, and Weirton- Steel Corporation; and 20- F (for foreign- based companies) filings for Daimler- Chrysler AG). As agreed with your office, unless you publicly announce its contents earlier, we will not distribute this correspondence until 30 days after its date. Then we will make GAO- 02- 639R Retiree Health Benefits Page 5 copies available upon request. This letter will also be available on GAO?s home page at http:// www. gao. gov. Please call me at (202) 512- 7118 or John Dicken at (202) 512- 7043 if you have any questions. Other contributors to this correspondence include Susan Anthony and Sari Bloom. Sincerely yours, Kathryn G. Allen Director, Health Care- Medicaid and Private Health Insurance Issues (290186) *** End of document. ***