Pensions There are many different facets in todays’ accounting world that have to be taken into account. These facets range from bookkeeping, mergers and acquisitions, and taxes to stock and pensions. One concern in today’s world that has everybody worried is the thought of retirement. With inflation and prices rising, planning retirement has become even more imperative despite becoming increasingly difficult. Pensions are one form of retirement planning that is fairly reliable and easy to set up. A pension is a contract for a fixed amount of money to be paid to someone in regular installments usually following retirement. A pension is a built up over many years of service for a company and it is a combination of investments and earnings throughout the years of service. From an accounting point of view, pensions are divided up as accounting for the employer and accounting for the pension fund. There are two types of pension plans. The first is a contributory fund. With this type, the employees have part of the burden as they make payments toward their fund throughout their career. The second type of fund us called a noncontributory fund. With this the employer bears all the costs and pays for the entire fund. Which type of pension fund is used depends on how a company wants to utilize federal income tax benefits. Plans that do offer tax benefits are called qualified pension plans. These plans offer tax deductions from the employer’s contributions and tax free earnings from pension fund assets. There are two sides to pension plans and both will be looked at within this paper. The first type of pension plan is a defined contribution plan. This type of pension focuses on what the employer contributes to a pension based on a formula. This formula is based on factors such as age, length of career, profits, and compensation amount. These plans are normally referred to as 401k plans. The employer turns over the original amounts contributed to a third party. This third party is then responsible for the investment and distribution of pension fund. In this case the employee receives all the benefits or losses from the fund and the employer only contributes yearly the amount decided by a formula. This means that employer must simply make a pension expense entry every year to record the amount that was paid to the pension fund. The pension is recorded as a liability only if the employer has not paid in full the agreed amount and it is recorded as an asset if they make the full payment. Along with the entry the employer must include notes that describe the plan, the determinants of contribution, and the groups covered. The second type of pension plan is a defined benefit plan. This type of plan focuses on the benefits the employee will receive upon retirement. The company must meet the designated benefit commitments upon retirement by determining how much they need to pay in the present to provide enough in the future. This type of plan benefits the employers as its primary purpose is to safeguard and invest assets into the fund in order to pay off the employer’s determined amount to the employee. This means that as long as the plan is alive the employer is responsible for making sure there is enough payment to cover the obligated amount no matter what happens in the trust. This puts employers at risk but also gives them the greatest chance to benefit should too much be allocated to the fund. To make sure that the fund is properly funded companies hire actuaries to ensure that the plans are right for the group of employees being covered. Actuaries compute formulas based on many variables to give estimates on how much the employer needs to place into the fund to meet the obligated amount. There are multiple ways to measure the employer’s obligation to the pension plan. The first type is called vested benefits. These benefits are the benefits that the employee is guaranteed to receive even if they no longer continue…
RETIREMENT BENEFITS ANALYSIS
Why Are Pensions Important?
Benefits at Retirement
Other Post Retirement Benefits
Role of Estimation
Determining Retirement Costs
Determining Plan Obligations
Determining Plan Assets
Pension Plan Disclosures
Analysis of Retirement Plans
WHY ARE PENSIONS IMPORTANT?
Societal Implications of Retirement Benefits
Social Significance – Who is responsible…
Pension and health care benefits provider to states and local government
employees are emsiderally broader in coverage and more geneous compared
with those for private sector emp;oyes. According to the bureau of labor
statistic’s employee compensation survey (March 2010), 84 percent of all
state and local government employees had access to a defined retirement
plan, 29 percent to a defined contribution retirement plan, and 23 percent to
both types of plans during 2009. 59…
Fundamentals of Pension Accounting
In applying accrual accounting to pensions, this Statement retains three fundamental aspects of past pension accounting: delaying recognition of certain events, reporting net cost, and offsetting liabilities and assets. Those three features of practice have shaped financial reporting for pensions for many years, although they have been neither explicitly addressed nor widely understood, and they conflict in some respects with accounting principles applied elsewhere…
In a defined contribution plan, the employer agrees to contribute a certain sum each period based on a formula.
IFRS: Pension expense = CSC +/- PSC (amortized over vesting period)
ASPE: Pension expense = CSC +/- PSC (amortized over rational systematic way)
A defined benefit plan defines the benefits that the employee will receive at the time of retirement.
Defined Benefit Obligation (DBO): BGN + CSC + interest (opening adjusted* balance x discount rate) +/- PSC + actuary’s losses (change…
generous pension and health-care promises that are no longer affordable.
The problem has been decades in the making. It has always been easier for politicians to promise generous retirement benefits to public servants than to raise their wages. The bill for jam today falls due immediately; the bill for jam tomorrow can be delayed for decades.
The same mindset once caused Detroit’s big three carmakers to strike deals with workers whereby they could retire as young as 48 with gold-plated pension and health-care…
out these operations greatly vary. These variances in business model led the analysis to focus on earnings from operations, operations costs, balance sheet analysis, cash flow analysis, inventory accounting, debt financing, retirement plans and benefits, and stock options.
Of the differences that were explored, it was their level of conservatism that most separated these two companies. Walgreens chooses a more conservative approach to their operations by growing organically, while CVS assumes…
San Diego Pension Dials Up the Risk to Combat a Shortfall
San Diego County's Pension Manager Is Extreme Example of Those Using Leverage to
Aug. 13, 2014 8:06 p.m. ET
A large California pension manager is using complex derivatives to supercharge its bets as it
looks to cover a funding shortfall and diversify its holdings.
The new strategy employed by the San Diego County Employees Retirement Association is
complicated and potentially risky, but officials…
section of our annual report and the Letter to Investors discloses all financial data relevant to the merger.
Note 8: Lease Obligations
ABC Company and all subsidiary companies have current lease obligations that are contained in one lease. ABC Company recognizes the lease as an operating lease and has accounted for the lease through the appropriate expensing. The lease obligations are recognized in each subsidiary's financial statements as a capital lease and related assets are treated as asset purchases…
the “blue flu”.
The whole thing started on May 28, 2014 when Tennessee Governor Bill Haslam signed the Pension Reform Law. For those who do not know, a pension is; “A regular payment made during a person’s retirement from an investment fund to which that person or their employer has contributed during their working life” (“Pension”, 2014, paragraph 1). To protect the government employees’ pensions, the new law requires all local government entities to make their yearly payments in full (Sells, 2014)…