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Legacy costs are expenses incurred by companies in a previous era, usually through benefit plans. Larger and older companies face more problems with legacy costs, which can hinder their financial viability. Companies can reduce these costs to increase profits. Public records can be used to determine how much money a company is investing in legacy costs.
Legacy costs are expenses that a company incurs in a previous era, usually through committing to benefit plans. Larger and older companies face more problems with legacy costs for a variety of reasons. These expenses do not generate revenue for the parent company and are sometimes used as an example of a cost that can hinder the financial viability of the company. Some companies have taken steps to try to reduce their legacy costs and increase their profits.
Many companies commit to paying pension plans, health insurance programs and other benefits because they believe it is an important part of doing business. These companies take prudent steps to protect their employees and make them feel like part of the family, especially during times of prosperity. As priorities change, the economy falters, and the company matures and is forced to pay benefits to more employees, these legacy costs can become significant.
If, for example, 100 workers retire each year, a company that has committed to paying retirement plans for 50 years will be supporting many workers in retirement. On the other hand, a newer company with a smaller workforce, retiring 50 employees a year over the past 20 years, will be paying much less, making these costs a less significant expense. The larger and older the company, the greater the inherited costs.
Historically, it was very common to offer extensive employee benefits and encourage workers to stay with the same employer for life. That approach to hiring and doing business has changed, and fewer companies make it a priority today. Newer employees may not be able to access the same benefits available to older employees, in part in an attempt to control legacy costs. Companies struggling with bankruptcy can also propose cuts to benefits for older employees as part of their reorganization process.
Public records can be used to determine how much money a company is investing in legacy costs. Analyzing historical records provides interesting insights into how much the company has spent over the years and how legacy costs affect the overall financial health of the company. It can also be helpful to compare these costs against the size of the workforce and retirement community to determine how much is being spent on each employee and retiree. When companies adjust their benefit programs, the proposals can be compared with public records to see how much of a difference it will make.
Asset Smart.
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