The areas of pension plans and other post retirement benefits (such as health care benefits) appear on the surface to be quite similar. Nonetheless, the Financial Accounting Standards Board issued its pronouncement on other postretirement benefits some five years after the issuance of the pro- nouncement on pensions. Explain why the FASB did not consider the areas of pensions and other post retirement benefits concurrently.

Answer:

FASB did not consider pensions and other postretirement benefits concurrently due to the differ- ing nature of the two obligations. Pension plans typically are funded while health care benefits are not. The benefits provided under pension plans typically are quite clearly defined whereas be- nefits for health care and other postretirement benefits are not. Indeed, many postretirement plans do not limit health care benefits and provide coverage regardless of the seriousness or length of an illness. The beneficiaries under a pension plan usually are limited to the retiree and his or her surviving spouse. Benefits for other postretirement benefits include the retiree, his or her spouse, and other dependents. Predicting the amount and timing of benefits paid under a pension plan is somewhat easier since benefits typically are paid monthly and tend to be well defined and some- what fixed. Other postretirement benefits must be paid as required and may be highly unpredict- able both as to timing and amount. The level of utilization of health care benefits is dependent on such things as life span, changes in technology, changes in the body of medical knowledge, and the incidence of previously unknown diseases. Each of these factors also may affect the price of health care. Furthermore, the price of health services may vary according to the geographic loca- tion of the recipients.