Pension Plan Memo Essay

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Pension Plan Memo Yeah Ok ACC/541 13 February 2012 Daphne Wagner MEMORANDUM TO: All Executives FROM: Chief Executive Officer DATE: February 13, 2012 SUBJECT: Required Reporting on Pension Plans CC: 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.…show more content…
Moreover, the company needs to disclose any information that affects “comparability from period to period (such as amendments increasing the annual contribution percentage” (Schroeder, et al., 2011, p.457). Thus, any changes to the plan or contributory payments must be disclosed on the financial statements. Defined Benefit Employers assume responsibility for providing retirement funds in a defined benefits plan. In the plan, a specified amount is set aside for future payments to employees, for life, during retirement. The amount is determine in advance is based on factors such as age, salary, and length of employment. In 2009, the maximum amount to be allotted under the plan was $195,000. Decisions concerning the amount of money to contribute to the plan and the type of investment are at the discretion of the employer. The complexities in accounting for these plans make hiring an outside actuary essential. Actuaries are used to provide statistical calculations about the cost of future investments. Using a benefits formula, actuaries calculate the required investments needed to meet the necessary contributions. SFAS No. 87 established the basis for disclosing defined benefits. Accordingly, the standard requires the immediate recognition of a liability “when the accumulated benefit obligation exceeds the fair value of plan assets,” (SFAS 187, p. 5), expanded disclosures

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