Pension Plans and Their Benefits

Topics: Pension, Cash balance plan, Economics terminology Pages: 5 (1191 words) Published: March 15, 2015


Reporting Paper for Pension Plans
Dorothy Forrest
ACC/541Accounting Theory and Research
December 1, 2014
Professor: Thomas Gruber

Memorandum
To: Thomas Gruber, CEO
From: Dorothy Forrest
Date: December 1, 2014
Re: Company Acquisition
Mr. Gruber our company has been going through many changes to better the company and a 100% acquisition of a new company will create changes in the retirement benefit plans area. Adjusting benefits plans will be complicated but with the required reporting, the changes will be a smooth process.. This memo will detail the reporting requirements for defined contributions, defined benefits, and other postretirement plans. Included is information on how to report the two segments, if they are kept and what must happen if they are to be eliminated. Defined Contribution Plan

Defined contribution plan is an employee’s retirement benefit plan that an employer promises to periodically make contribution toward. Matching employees’ contribution to the benefit plan is how most companies allocate funds. No promise amounts are made concerning the pay out of the total benefits. Once funds are invested the rates can change and this can decide benefit amounts on the contributions invested funds during the investment period. The defined contribution plan is recorded as a pension expense on the financial statements. All risk is put on the employees because this is a no risk transaction for the employer. Defined Benefit Plan

Defined benefit plan set the retirement benefit amounts an employee would receive but has define set terms. One term set by most companies is in order for employees to receive full benefit it require employees to have 30 years of service, and is between 65-67 which s consider retirement age. Full benefits are average out of an employee highest five year salaries and a employee is only entitle to 60%. The company must calculate to make sure the annual contribution is enough to meet future benefits requirements. There is some difference in the plans as you see. The defined contribution plan is straightforward, while the defined benefit plan is affect by many variables such as length of service, mortality, and turnover. The employers carry the risk of the defined benefit plan because they are the ones that have to make sure the company contribution is large enough to meet the promised pension benefits. Other Postretirement Benefits (OPRB)

Other postretirement benefits are a pronouncement that handle the accounting for all benefits, other than pension benefits and is offered to retired employees. These provisions apply to many postretirement benefits such as tuition assistance, day care, legal services, and subsidize housing and the most important is OPRBs retiree healthcare benefits and life insurance. OPRBs are offer in exchange for current services, and are similar to defined benefit pension plans but according to FASB ASC 715 guidelines “require that the cost of OPRBs be accrued over the working lives of the employees expected to receive them.” However there is controversial about the measurement and reporting issues connected to the employer’s obligation for OPRBs. According FASB ASC guidelines it is not require minimum liability balance sheet disclosure. Based on the view that the organizations promise OPRB’s in trade for current services, it shows t that OPRB’s are comparable to defined benefit pension plans and as such warrant comparable treatment. “Although on the surface OPRB’s are similar to defined pension plans, they have The OPRB’s similar characteristics to defined benefit is that according to Schroeder, Clark, & Cathey, 2011 “1. Defined benefit pension payments are determined by formula, whereas the future cash outlays for OPRB’s depend on the amount of services, such as medical care, that the employees will eventually receive. Unlike pension plan payments, there is no “cap” on the amount...
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