Glossary

Future Service Obligation (FSO)

Also known as: obligation to provide future services, FSO

An actuarially calculated liability, reported on a CCRC's financial statements, representing the present value of future care and service costs owed to current residents in excess of the future revenue expected to be collected from them (including remaining deferred entrance-fee revenue).

The FSO calculation is the accounting mechanism that forces a CCRC to recognize, ahead of time, the cost of its promise to provide lifetime care -- particularly acute for Type A life-care contracts where the community bears essentially all future care-cost risk. A rising FSO signals that a community's resident population is aging and consuming more care relative to what it prepaid, or that entrance-fee pricing has not kept pace with actual care-cost inflation and mortality/morbidity experience, and is one of the first metrics bond analysts and lenders review when assessing a CCRC credit; a well-run CCRC actively manages entrance-fee and monthly-fee pricing, along with reserve funding, specifically to keep the FSO within manageable bounds.