Plan Accounting : Defined Benefit Pension Plan, Health And Welfare Benefit Plans

SFAS No. 87 “Employers’ Accounting for Pensions” maintains that pension information should be prepared on the accrual basis and retained three fundamental aspects of past pension accounting: 1. delaying recognition of certain events, 2. Reporting net cost, and 3. offsetting assets and liabilities” (Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011). “The components of pension costs reflect different aspects of the benefits earned by employees and the method of financing those benefits by the employer. The following are required to be included in the net pension cost recognized by the employer sponsoring a defined benefits pension plan: 1. Service cost, 2. Interest cost, 3. Return on plan assets, 4. Amortization of unrecognized prior service cost, 5. Amortization of gains and losses, 6. Amortization of the unrecognized net obligation or unrecognized net asset at the date of the initial application of SFAS No. 87” (Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011).

Keeping good records of all contributions that are made and put into the account is very important. Recordkeeping helps to keep the system accurate and helps track the earning and loses of the investment plan, and the expenses and benefit distributions to the participants accounts.

* ASC 320-10-35-21: “An investment is impaired if the fair value of the investment is less than its cost.”

2. Implemented a Hybrid Defined Benefit (DB) and Defined Contribution (DC) Plan: The hybrid DB/DC plan aims to reduce DB liabilities with a DC fund while also maintaining support from union groups who desire the security of a DB system.

For pensions and post-retirement accounting methods to recognize the benefit costs, estimates and assumptions on future events ascertaining the timing and amount of benefits payments must be sought first. This paper seeks to compare and contrast the early historical accounting for pensions and post-retirement healthcare and life insurance benefits with the rules and guidance applied today in addition to the changes to such guidance and rules that would improve the accounting and reporting of such benefits depending on the business and political changes and as such, predict the effect of such changes on financial reporting and accounting practices.

There are many ways to educate your staffs, is to give them the option to choose between the defined-contribution plans, direct contracting, and consumer-driven a plan. However, more generous interpretation of consumer-driven plans than previously mentioned, and the national health insurance. For instance, under defined-contribution plans, employees typically choose from a variety of health care options, with a specified amount of the premium paid for by the employers. One way to insure your staffs is direct contracting which is large employer’s contract directly with integrated delivery systems or of health care providers capable of accepting a financial risk and delivering a full range of health care services. (Nowicki, p74 & 75.)

The Mississippi Public Employees’ Retirement System Comprehensive Annual Financial Report is the local government that conspicuous for this particular paper. “Despite the uncertain and fragile economy, the board members of the Public Employees Retirement System have continued to provide secure retirement benefits to tens of thousands of retired Mississippi public employees, while expanding our technological efficiencies and directing ourselves to maintain financial sustainability well into the future. Reporting that we remain well prepared to provide secure benefits while carefully safeguarding the retirement future of our members and retirees is my privilege,” (The Office of Administrative Services, 2012, pg. 7). The public employee retirement systems are created to provide pension security for plan participants (Chaney, 2002, pg. 2002, pg. 278). In Mississippi, the system was established to provide benefits for all state and public education employees, officers of the Mississippi Highway Patrol, elected members of the State Legislature, the President of the Senate, and other public employees of participating employers, (The Office of Administrative Services, 2012, pg. 7). However, because governments have discretionary funding authority, critics argue that pension systems also are used to lessen the fiscal stress of government sponsors (Chaney, 2002, pg. 2002, pg. 278-288).

If the cost of an available-for-sale security exceeds its fair value by $40,000, the entry to recognize the loss

12) Government A makes pension contributions on behalf of its employees to both a defined benefit plan and a defined contribution plan. Assume that the employer contributions for the fiscal year totaled $55,000 for the defined benefit plan and $35,000 for the defined contribution plan. The General Fund will report

Accordingly, the $39.3 million actuarial gain which resulted from the restructuring is included in Accrued Pension Costs in the accompanying Balance Sheet and is being amortized to income over a ten-year period commencing in 1984. The effect of the changes in the investment return assumption rates for all U.S. plans, together with the 1984 restructuring of the U.S. Salaried Employees' Plan, was to reduce pension expense by approximately $4.0 million in 1984 and $2.0 million in 1983, and the actuarial present value of accumulated plan benefits by approximately $60.0 million in 1984. Pension expense in 1983 was also reduced $2.1 million from the lower level of active employees. Other actuarial gains, including higher than anticipated investment results, more than offset the additional pension costs resulting from plan changes and interest charges on balance sheet accruals in 1984 and 1983.

The recent acquisition by our company has created two issues which need to be addressed; the two segments which are required to be reported and the two different pension plans. My goal is to eliminate the segments as well as determine the appropriate method for reporting both pension plans. Discussed herein are descriptions of the defined contribution plan, the defined benefit plan, as well as other post retirement plans. Furthermore, I have include a recommendation as to eliminating the two segments.

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.

Bhimani, A., Horngren, C., Datar, S., Rajan, M. et al. (2012) Management and Cost Accounting. 5th ed. Edinburgh: Prentice Hall, p.369 - 378.

There are a number of differences between GAAP and IFRS in the area of accounting for pensions and other post-retirement and postemployment benefits (Deloitte, 2004). Some differences will result in less earnings volatility, while others will result in more. Under IFRS, a company can adopt a policy that would allow recognition of gains/losses in other comprehensive income. Gains/losses treated in accordance with this election would not be subsequently recycled through the income statement. This election generally reduces the volatility of pension expense recorded within the company’s income statement because gains/losses would be recorded only within other comprehensive income. Other policy elections available under IFRS for gain/loss recognition are similar to those under GAAP. Under IFRS, companies are not required to present the full-funded status of the postemployment benefit plans on the balance sheet. However, companies are required to disclose the full-funded status within the notes to the financial statements. GAAP permits the use of a calculated asset value to spread market movements over periods up to five years in the determination of expected returns of plan assets. IFRS prohibits the use of calculated value and required that the actual fair value of plan assets at each measurement date be used. Differences between GAAP and

Pension obligations face several critical factors in computations of estimates; interest rates, vesting requirements, life expectancies, work-force projections, and company reorganizations. As TecQuirk administers a defined pension plan, estimates must be calculated for future pension payments, which are dependent upon contributions and the effectiveness of reserves management (Volkov,