February 20, 2015
Date: February 20, 2015
Subject: Pension Plans and Eliminating Segments
This memo is to provide a response to the new CEO who is requesting information regarding the following areas. The first discussion is and explanation of the required reporting on retirement plans that includes defined contribution, defined benefit, and other postretirement plans. The memo will also include what may happen when two segments are to be eliminated.
Defined Contribution Plan
A defined contribution plan is when an employer puts aside a ...view middle of the document...
Basically this plan is a set payout made by employers for when you are ready to retire and calculated base on salary and years of service. There are two types of benefit plans:
a. “Cash balance plans (FASB ASC 715-30-15-3)”
b. Benefits provided in the event of a voluntary or involuntary severance of employment (also called termination indemnities) if such an arrangement is in substance a pension plan (for example, if the benefits are paid for virtually all terminations). (FASB ASC 715-30-15-3)”
Other Post Retirement Plans
Other types of retirement plans are benefit plans that usually include medical and also life insurance plans. These types of plans are usually considered to be non-cash payment benefits. The plan can include not just medical but also dental, vision and even tuition credits. “Generally, the amount of those benefits depends on the benefit formula (which may include factors such as the number of years of service rendered or the employee's compensation before retirement or termination), the longevity of the retiree and any beneficiaries and covered dependents, and the incidence of events requiring benefit payments (for example, illnesses affecting the amount of health care required). (FASB ASC 715-60-05-5)”
Reporting Pension Plans and Postretirement Plans
To report pension plans and post retirement plans, the company must disclose information under the FASB Statement no. 132 Employers’ Disclosures about Pensions and Other Postretirement Benefits. This Statement was created to better determine what is allowable when reporting. An article in the Journal of Accountancy has listed the following for information needed to be disclosing for defined benefit pension and other postretirement benefit plans.
* A reconciliation of beginning and ending balances of the benefit obligation, which refers to the entity's projected benefit obligation (PBO) under Statement no. 87 or its accumulated postretirement benefit obligation (APBO) under Statement no. 106. Employers no longer have to disclose the separate components (for fully eligible active employees, other active employees and retirees) of the APBO. For pension plans, employers no longer must disclose the vested benefit obligation and the accumulated benefit obligation. (For an exception for employers with more than one plan, see the following section.)
* A reconciliation of beginning and ending balances of the fair value of plan assets. Nonqualified pension and other postretirement benefits plans frequently do not have separate plan assets. Instead, payments are made from the plan sponsor's general assets. Statement no. 132 does not give special disclosure requirements for these cases. Employers should still show a reconciliation, even though there would be no return on assets and the beginning and ending values would be zero.
* The plans' funded status, including the amounts recognized and not recognized, in the statement of financial position.
* The amount of...