October 25, 2010
School of Business/Leslie Crews
From: Papa Rydoo
Date: October 25, 2010
Reference: Postretirement Plans
Acquisition of a company leads to many changes in the company and especially in the area of the retirement benefit plans for our company. It is complicated adjusting to benefits plans but with the required reporting, the transition will be smooth. The different types of pension plans we will focus on are; defined contribution, defined benefit, and other postretirement plans. Defined Contribution Plan (DCP)
Defined contribution plan is a retirement plan that an employer promises to contribute toward an employee’s retirement funds periodically. Most companies will match whatever an employee contributes towards the fund. However, there would be no promise as to the ultimate benefits that would be paid into the funds because the retirement benefits are determined by the returned earned on the contributions to the funds during the investment period (Schroeder, Clark, & Cathey, 2005, p. 445). DCP is recorded on the financial statements as a pension expense, it is a straightforward transaction and it carries no risk for the employer because all the risks go to the employee.
Defined Benefit Plan (DBP)
Defined benefit plan is the amount of retirement benefits an employee would receive in the future but the terms are defined by the company. Most companies would have terms that would require employees to have at least 30 years of service, and reach the retirement age between 65-67 years of age to receive full benefits as listed by the company. Full benefits an employee would receive could be 60% of the average of the highest five yearly salaries. A company must decide the annual contribution to meet benefits requirements in the future (Schroeder, Clark, & Cathey, 2005, p. 445). Pension plans to be received in the future are affected...