Compaq and Employee Benefit Plans
Compaq's termination of disabled employees and slashing these employee's financial and health care security


"Dear Disabled Employee"

"Dear Disabled Employee" II


The "transition obligation"

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The "transition obligation"

In the 1990's Digital made major changes to its disability benefit plans. Employees already on disability were prohibited from accessing these new plans which is consistent with the written documentation. At the same time, such employees were explicitly referred to their existing plan documentation.

Digital not only recognized its obligation but, in fiscal 1994, took a 71 million dollar charge against income specifically representing this "transition obligation".

The reader is encouraged to consider the use of the word "obligation" and that this "obligation" was use for tax purposes.

From Digital's 1996 annual report, note_g:

Postemployment benefits In the fourth quarter of fiscal 1994, the Corporation adopted Statement of Financial Accounting Standards (SFAS)No. 112 - Employers' Accounting for Postemployment Benefits, effective as of the beginning of the fiscal year. This standard requires the accrual of benefits provided to former or inactive employees, after employment but before retirement. These benefits include, but are not limited to, salary continuation, supplemental unemployment benefits, severance benefits, disability-related benefits and continuation of benefits such as health care and life insurance coverage.

The cumulative effect of adopting this standard resulted in a one-time charge to income of $71,068,000 (the "transition obligation"), or $.51 per common share. This transition obligation represents principally the cost of providing medical, dental and life insurance benefits to individuals in the U.S. currently on long-term disability, during the estimated remaining period in which they will receive disability benefits. The annual expense under the standard, exclusive of the transition obligation, is not significantly different than the annual expense under the Corporation's former practice. There was no cash flow impact from the adoption of SFAS No. 112.


Click for Digital's 1996 annual report, note_g

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