What option best defines the future liabilities shown on the annual report?

What option best defines the future liabilities shown on the annual report?

• A. Paid to date
• B. Total Reserves less paid to date
• C. Incurred less paid to date
• D. The probable total future cost of compensation for the injury or disease

Answer: (D)

Future liabilities shown on the annual report represent the estimated ultimate cost of all injuries or diseases the plan may have to pay, i.e., the probable total future cost of compensation. This goes beyond what has already been paid or what is currently reserved, capturing the full expected settlement of all claims. That’s why the option describing the probable total future cost of compensation for the injury or disease is the best fit. Paid to date only accounts for cash already disbursed. The reserves less paid to date would give an outstanding reserve amount on known claims, not the total expected future cost. Incurred less paid to date reflects amounts incurred but not yet paid, which again covers only part of the future obligations rather than the full expected cost.

Future liabilities shown on the annual report represent the estimated ultimate cost of all injuries or diseases the plan may have to pay, i.e., the probable total future cost of compensation. This goes beyond what has already been paid or what is currently reserved, capturing the full expected settlement of all claims.

That’s why the option describing the probable total future cost of compensation for the injury or disease is the best fit. Paid to date only accounts for cash already disbursed. The reserves less paid to date would give an outstanding reserve amount on known claims, not the total expected future cost. Incurred less paid to date reflects amounts incurred but not yet paid, which again covers only part of the future obligations rather than the full expected cost.