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Actuarial Services

Post Employment Employee Benefits

Many employers provide post employment benefits such as pensions, severance benefits, long service rewards or medical benefits as a tool to attract, retain and care for the well being of loyal employees. Many countries further require employers by law to provide certain minimum level of long service rewards for employees. Often, the amount of benefits are uncertain until the time of termination or retirement as they are linked to employees' salary or inflation during the employment years. As a result, many employers are unprepared for the financial burden and risks associated with their promises which often lead to unpleasant surprises.

Accounting requirements

In order to properly recognise the costs of these benefits, accounting standards were introduced around the world requiring companies to expense their post employment employee benefit obligations. US companies are required to comply with FAS87/88/132 and 106. Other countries adopt more stingy requirements from the international accounting standard such as IAS19. Hong Kong follows IAS19 by introducing similar standards HKAS19 and SSAP34. Increasingly employers are facing more burden than ever before, leading some companies to financial difficulties at the time when they are least prepared for them.

What is the fair value?

The amount of expense will depend on the fair value of these benefits which changes from time to time due to change in workforce demographics, and economic conditions. Determining the proper value for these benefits is no simple task as there is no market price for them. As a result, fair value is estimated using valuation techniques after taking economic data, benefit provisions, employee behaviours into consideration, which would require a significant amount of professional judgement.

Strategic Plan Management

In reality many of defined benefit plans have been mismanaged. When the economic environment is good, interest rates tends to be high, employee liabilities falls while assets accumulate with high investment returns. This will result in plan surpluses. Often, employers take advantage of this opportunity to withhold contributions, and employees would like benefit increases. Both actions diminish the plan surpluses that is intended to buffer future downturn in the economic cycle.

When the economic cycle comes to a downturn, interest rates tends to be low, asset returns are poor which further deteriorates the plan surpluses. In many cases, these plans will become insolvent which the regulators would enforce significant cash injection from the plan sponsors -- when the plan sponsors have little ability to do so at that time.

More over, many employee benefit obligations are not funded in Asia resulting in greater financial burden to employers. This will happen much sooner than you think given ever aging population.

The mismanagement of employee benefits caused significant financial distress to employers as well as ever increasing distrusts between employers and employees resulting in productivity losses. Just look at recent examples like United Airlines and GM. Good plan management comes with good plan designs, good strategies, as well as good planning.

The Real Consulting difference

At Real Consulting, we have no interests in helping clients retaining their benefit programs if they are not in their best interests. Other consulting firms may offer bias opinions because they have vested interest in highly lucrative consulting fees in the future.

We provides comprehensive actuarial consulting and valuation services for post employment employee benefits-whether you need to comply with US, international or local accounting standards. We apply our leading risk analysis techniques to traditional actuarial valuations giving our clients the power to manage their risks properly and with confidence.

Our Asset Liability Management services can help you plan ahead to reduce the impact and likelihood of surplus shortfalls, so everyone can benefit from the security.

If the current employee benefits no longer suit the business environment, we can help clients redesign and realign your benefits to your business objectives. Once this is in place, we can assist the clients in communicating the benefits to their employees. After all there are no values if no one knows how to appreciate them.

  • Actuarial Services
    Plan design, statutory and accounting valuation, simulation, forecasting, strategic analysis and communication
  • Risk Management - Asset Liability Management
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