Recent Developments Spark Renewed Interest in Tax Exempt Benefit Trusts

Recent changes in financial accounting reporting obligations have caused many employers, both public and private, to re-examine the overall economics of pre-funding retiree medical benefits. These changes, mandated by Financial Accounting Standards Board (“FASB”) Statement No. 106 for the private sector and Government Accounting Standards Board (“GASB”) Statement No. 45 for the public sector, require employers to report the unfunded cost of future retiree medical obligations on their balance sheets. In an effort to counter this potential adverse balance sheet impact, many employers, both public and private, are re-examining their health plan design — often considering a tax-favored trust for benefit funding.