“Will it cost your company your company? Ready for one of the most difficult challenges ever to confront corporate America? One that is estimated to cost up to $400 billion. New FASB regulations will force companies to measure and post as a debit their health expense obligation to current and future retirees. . . . We’ll help you minimize the financial impact of these regulations and still enable you to remain responsive to the benefit needs of employees.” (Excerpts from an advertisement by CIGNA, a large insurance company.)
“Forget about retiring with all-expenses-paid health care from your employer. About 65% of U.S. companies have reduced benefits. Some have asked retirees to pay more of the costs, while others have eliminated the plans altogether. Blame soaring medical expenses and a new accounting rule that requires companies to post long-term retiree medical benefits as liabilities on their balance sheets.” (Adapted from Business Week, August 24, 1992, p. 39.)
Required
1. Critically evaluate the content of the advertisement.
2. Explain why companies may have reduced benefits when they adopted FASB Statement No. 106.