Pension Plan Memo
13 February 2012
Chief Executive Officer
February 13, 2012
Required Reporting on Pension Plans
Board of Directors
Our company has been providing their employees with a pension plan for many years. However, these benefits plans have to be reviewed and possibly revised after the recent acquisition of XYZ Company. Through the use of a funding agency, payments are invested so that periodic payments can be made to the employee during retirement. Defined contribution and defined benefit are the two most common types of pension plans. However, employers offer additional retirement benefits such as tuition assistance, healthcare, life insurance, and housing subsidies (Schroeder, Clark, & Cathey, 2011, p. 470) as guided by SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions.” Each plan caries different risk and benefits for employer and employee. A brief summary is hereby provided to aid in deciding the appropriate plan for the company.
Defined contributions plans are rapidly becoming the preferred plan for most firms. The plan offers less risk to employers because employees make contribution towards retirement funds. Employees contribute a set percentage, taken from the salary, to the plan. Funds are invested into a plan such as a 401K or Thrift Savings Plan (TSP) for Federal employees. The amount the retiree receives is based on the return on investment at the receipt. That is, the benefits the recipients earn are based on the stability of the investment and the return earned on funds during the time of investment. The risk of the investment is borne by the employee as the market changes in value. The employer’s responsibility is the “annual contribution to the pension plan fund” (Schroeder, Clark, &...
References: Schroeder, R.G, Clark, M.W., & Cathey, J.M. (2011). Financial accounting theory and
analysis: Text and cases, 10th ed. Hoboken, N.J.: John Wiley & Sons, Inc.
Financial Accounting and Standards Board Codification 840-10-25, Accounting for leases. Retrieved from http://asc.fasb.org/link&sourceid=SL4508846-113306&objid=6524565
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