The requirements now being drafted would apply to companies that use the NAIC Accounting Practices and Procedures Manual.

Drafters suggest in a "scope of statement" that the new SSAP would apply to "all postretirement benefits expected to be provided by an employer to current and former employees," including health benefits, life insurance provided for retirees outside a pension plans, and other welfare benefits, such as tuition assistance benefits, legal services benefits and housing subsidies provided after retirement.

Stephen Alpert and Dale Yammoto, representatives from the American Academy of Actuaries (AAA), Washington, have written to the NAIC in a comment letter to suggest that accounting principles should distinguish between "long-term term benefits that will be paid and those that may or may not be paid, particularly for assessing solvency."

When private-sector employers have reduced health benefits, "courts have found that OPEBs are not binding promises if the employer reserves the right to amend or terminate those benefits," Alpert and Yammoto say. "As a result, most observers believe that when sponsors face financial stress, major changes – reducing or even terminating benefits – are very likely to occur. Given little resistance by participants to significant benefit reductions, participants may be aware of limitations on the employer's commitmen (even if those limits are not explicitly stated by employers) or may discount the future value of any currently provided retiree health benefits."

In the current draft, drafters say accounting for OPEBs should reflect "the terms of the exchange transaction that takes place between an employer that provides postretirement benefits and the employees who render services in exchange for those benefits, as those terms are understood by both parties to the transaction."

The written plan generally provides the best evidence of the terms of that exchange transaction, but, "in some situations, an employer's cost-sharing policy, as evidenced by past practice or by communication of intended changes to a plan's cost-sharing provisions, or a past practice of regular increases in certain monetary benefits may indicate that the substantive plan—the plan as understood by the parties to the exchange transaction—differs from the extant written plan," drafters say. "The substantive plan shall be the basis for the accounting."

Factors that could lead to adjustments could include past practices, such as efforts to maintain consistent levels of employer and employee cost-sharing or employer communications about when postretirement benefits might change, such as when health care cost increases exceed a certain level.

Past practices concerning retiree benefits "shall not constitute provisions of the substantive plan if accompanied by identifiable offsetting changes in other benefits or compensation or if the employer incurred significant costs, such as work stoppages, to effect that cost-sharing policy," drafters say.

"Similarly, an employer's communication of its intent to institute cost-sharing provisions that differ from the extant written plan or the past cost-sharing practice shall not constitute provisions of the substantive plan (a) if the plan participants would be unwilling to accept the change without adverse consequences to the employer's operations or (b) if other modifications of the plan, such as the level of benefit coverage, or providing offsetting changes in other benefits, such as pension benefits, would be required to gain plan participants' acceptance of the change to the cost-sharing arrangement," officials say.