ch 20 - 20 ACCOUNTING FOR POSTEMPLOYMENT BENEFITS CHAPTER...

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Unformatted text preview: 20 ACCOUNTING FOR POSTEMPLOYMENT BENEFITS CHAPTER OBJECTIVES After careful study of this chapter, students will be able to: 1. Understand the characteristics of pension plans. 2. Explain the historical perspective of accounting for pension plans. 3. Explain the accounting principles for defined benefit plans, including computing pension expense and recognizing pension liabilities and assets. 4. Account for pensions. 5. Understand disclosures of pensions. 6. Explain the conceptual issues regarding pensions. 7. Understand several additional issues related to pensions. 8. Explain other postemployment benefits (OPEBs). 9. Account for OPEBs. 20-1 10. Explain the conceptual issues regarding OPEBs. 11. Understand present value calculations for pensions (Appendix). 20-2 SYNOPSIS Characteristics of Pension Plans 1. A pension plan requires that a company provide income to its retired employees for the services they provided during their employment. A defined benefit plan either specifically states the benefits to be received by employees after retirement or the methods of determining such benefits. In contrast, under a defined contribution plan , the employer's contribution is based on a formula, and future benefits are limited to an amount which the contributions and the returns earned on the investment of these contributions can provide. Defined benefit plans are the primary focus of this chapter. 2. Under a funded pension plan, the company makes periodic payments to a funding agency which is responsible for safeguarding and investing pension assets, and for making payments to retired employees. The amounts needed to fund a pension plan are determined by actuaries using compound interest techniques, projections of future events, and actuarial funding methods. Under an unfunded plan, no such periodic payments are made. Instead, the payments to retired employees are made from current resources. Although the Pension Reform Act of 1974 eliminated unfunded company plans, some company plans are still underfunded and many governmental plans are unfunded. A pension plan is contributory if employees bear part of the cost, and noncontributory if the total cost is borne by the employer. Corporate pension plans are usually noncontributory. 3. This chapter focuses on the provisions of FASB Statement No. 87 and FASB Statement No. 132 as they relate to employers' accounting and disclosures for pension plans. The operation of private retirement plans is regulated by the Employee Retirement Income Security Act of 1974 (ERISA), also called the Pension Reform Act of 1974. In addition, most companies design their plans to also called the Pension Reform Act of 1974....
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ch 20 - 20 ACCOUNTING FOR POSTEMPLOYMENT BENEFITS CHAPTER...

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