Reporting on Two Different Pension Plans and Eliminate Two Segments

Topics: Pension, Cash balance plan, 401(k) Pages: 5 (1392 words) Published: November 1, 2010

Pamela Jefferies
ACC 541
October 19, 2010
Christine Errico

Our company has acquired a new manufacturing company. The new company has certain components, which are different from the new parent company. First, it has two different pension plans, which our company will have to research and to learn how to report on our financial statement. Also they have two different segments, which our objective is to eliminate. Our first goal is to define the pension plans and other retirement benefit plans and how we are to report them on our financial statements. Our second goal is to define the steps to eliminate the two segments within the guidelines of the Federal Accounting Standard Boards and the Statement of Financial Accounting Standards.

Acquiring a new company is always stressful as all the different components are recognized and defined. We have acquired a new company that has two segments and two different pension plans. Our goal is to define the pension plans and how we are to report them on our financial statements. We will discuss the two segments and what we need to do to eliminate them correctly without repercussions to the parent company. This report will assist the Chief Executive Officer in making the decisions he will need going forth with our new acquisition. . Defined Contribution Plan

The first pension plan defined is called a defined contribution plan. In this pension plan the employer has agreed to contribute a certain amount each year. Sometimes both the employer and employee agree to contribute to the employee’s account. The contributions are invested for the employee and at retirement he or she will receive the balance in the employee’s account, which consists of the contributions plus or minus the gains or losses. The account value will fluctuate because of the value of the investments. Some examples of defined contribution accounts are 401(k) plans, 403(b) plans, employee stock ownership plans, and profit-sharing plan (Schroeder, Clark, & Cathey, 2005). Reporting the defined contribution plan is relatively simple. The employer periodically expenses the agreed amount it will contribute to the employee’s retirement account. The financial statements notes will reveal the presence of the plan, the employee groups covered, the source for establishing contributions, and any important material that may affect comparability from period to period, for example, amendments increasing the annual contribution percentage (Schroeder, Clark, & Cathey, 2005). Defined Benefit Plan

The defined benefit plan is a pension plan that guarantees a specific monthly benefit at retirement. The benefit plan is determined by a formula based on the employee’s earnings history, length of service, and age (Shaw, 2008). The employer has the liability in this type of pension plan because it will have full control of the plan and its investments. These plans are affected by unreliable variables such as turnover, mortality, length of employee service, compensation levels, and the earnings of the pension fund assets (Schroeder, Clark, & Cathey, 2005). The employer’s contribution is determined by how much investment is needed to meet the defined benefits. They will consider the employee’s life expectancy and normal retirement age, changes to interest rates, annual retirement benefit amount, and the potential for employee turnover (Shaw, 2008). The benefits under this plan are protected with limits, by federal insurance that is provided by the Pension Benefit Guaranty Corporation. Reporting defined benefit plans are more complex than defined contribution plans. Statement of Financial Accounting Standards (SFAS) 158 requires the prepaid or accrued pension cost to be reported on the balance sheet, in the past this information was reported in the footnotes (Shaw, 2008). Companies must distinguish the dissimilarity concerning the plan’s projected benefit...
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