ACC/541 Accounting Theory and Research
January 29, 2015
Prof. Vilaró Nelms
|To: |CEO |
|From: |Nathalie Salib |
|Date: |1/28/2015 |
|Re: |Required ...view middle of the document...
The only cash outflow for the employer is the annual contribution to the pension plan fund. As a result, the periodic pension expense is equal to the amount of promised annual contribution. A company that chooses a defined contribution pension plan, it should be disclosed on the financial statements the existence of the plan, the employee groups that are covered, the basis for which the contributions are determined, and significant matters that affect comparability from period to period (Schroeder, Clark, & Cathey, 2011).
A defined benefit plan specifies the amounts of pension benefits are to be paid to plan recipients in the future. This could be a percentage of the average salary of a certain amount of years of service, when an employee reaches a specified retirement age. This type of pension plan does require sufficient contributions to the funding agency to meet the requirements of the benefit when it is used. The Employee Retirement Income Security Act (ERISA) imposes a minimum funding requirement for a defined benefit pension plan. Reporting for defined benefit plans is much more complicated than the defined contribution. Unlike the defined contribution plan, the risks are borne by the employers due to having to make large enough contributions to meet the benefits promised. This result in the amount of periodic pension expense possibly not being equal to the cash contributed to the plan. These payments are determined by a formula and are accumulated with each year of service (Schroeder, Clark, & Cathey, 2011).
There are other postretirement benefits (OPRB) offered to employees besides pension plans. These benefits include, healthcare benefits, life insurance, tuition assistance, and housing subsidies. To address these benefits, SFAS No. 106, “Employers’ Accounting for Postretirement...