Acc 541

Only available on StudyMode
  • Topic: Pension, Cash balance plan, Pension fund
  • Pages : 4 (920 words )
  • Download(s) : 241
  • Published : March 26, 2012
Open Document
Text Preview
Reporting Paper
ACC 541
November 21, 2011
Calie Lukenbill
Dr. Sonja Wilson

To: Sonja Wilson
From: Calie Lukenbill
Date: November 21, 2011
Subject: Pensions

As you may know there are two types of pension plans that are most commonly used: a defined contribution plan and a defined benefit plan. “A defined contribution plan sets forth a certain amount that the employer is to contribute to the plan each period (Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011). “A defined benefit plan specifies the amount of pension benefits to be paid out to plan recipients in the future. Companies that use this plan must make sufficient contributions to the funding agency in order to meet benefit requirements when they come due” (Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011).

The defined contribution plan makes no promises on what the ultimate benefits are to be paid. “The benefits received by the recipients are determined by the return earned on the invested pension funds during the investment period” (Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011). When you account for this plan the risk for future benefit is the employee and the employer’s only cash outflow is the annual contribution to the pension plan fund. “The pension expense is equal to the amount of promised annual contribution”(Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011). The financial statements should disclose the plan, what groups are covered, the basis for determining contributions, and any significant matters affecting comparability from period to period (Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011).

Accounting for the defined benefit plan is more complex. “The pension benefits to be received in the future are affected by uncertain variables such as turnover, mortality, length of employee service,...
tracking img