AAA Financial Accounting Standards Committee On Other Post-

The proposed Statement on Financial Accounting Standards, Employers' Accounting for Postretirement Benefits Other than Pensions, requires more extensive accounting for postretirement benefits and will further improve financial reporting. The provisions of the proposed Statement are similar to those of the Financial Accounting Standards Board (FASB) Statements 87, Employers' Accounting for Pensions, and 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits. According to the American Accounting Association (AAA), the correct method for accounting for postretirement benefits is to recognize the obligation as a liability; changes in the liability should be recorded currently in earnings. An explicit approach for determining assumptions on health care cost trend rates, expected long-term rates of return on plan assets, and discount rates should be used. The FASB's proposal to treat plan initiations and amendments as retroactive in those situations in which the employee service period is not specified is reasonable and consistent with pension accounting.