Pensions+Class+2+completed - FutureBenefits Introduction...

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Pensions and Other Employee
Pensions and Other Employee
Future Benefits
Future Benefits
Introduction
Introduction
and Benefit
and Benefit
Plan Basics Plan Basics
•Introduction
•Defined
contribution
plans
•Defined
benefit plans
•Nature of
pension plans
Presentation,
Presentation,
Disclosure, and
Disclosure, and
Analysis Analysis
•Presentation
•Disclosures
•
Illustration
•Analysis
Defined Benefit
Defined Benefit
Pension Plans
Pension Plans
•
The employer’s obligation
•Plan assets
•Funded status
•
Benefit cost components
•Immediate recognition
approach
•Deferral and amortization
approach
•Other considerations
•
Comparison of results
•Other defined benefit
plans
IFRS / Private
IFRS / Private
Enterprise
Enterprise
GAAP GAAP
Comparison
Comparison
•
Comparison of
IFRS and private
enterprise GAAP
•Looking ahead

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Funded Status
Funded Status
Accrued Benefit Obligation (ABO)
- Fair Value of plan assets
= Funded status
•
ABO > Plan assets = underfunded = funded
status liability
•
ABO < Plan assets = overfunded = funded
status asset

3
•
Components that change ABO and fund assets
(therefore, funded status) include:
1. Current service cost
2. Interest cost
3. Past service cost
4. Return on plan assets
5. Actuarial gains and losses
Components of
Components of
Pension Benefit Cost
Pension Benefit Cost

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•
Pension cost should be accrued and recognized
in accounting periods that benefit from
employees’ service
•
Two approaches to accounting for pension
expense
–
Immediate recognition approach
•
Allowed under PE GAAP
–
Deferral and amortization approach
•
Required under IFRS
•
Allowed under PE GAAP
Accounting for Pensions
Accounting for Pensions

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Immediate Recognition Approach
Immediate Recognition Approach
Pension Expense
Current service
cost
+
Current interest
cost
+
Actual return on
Plan Assets
-
Past Service Costs
recognized
immediately
Actuarial
gains/losses
recognized
Immediately
+ or - + or -

Immediate Recognition Approach
Immediate Recognition Approach
•
ABO and fund assets are not recognized as separate
balance sheet accounts (they are off-balance sheet or
memo accounts)
•
Accrued pension asset/liability recorded on the
balance sheet represents the net position or funded
status
•
ABO is based on valuation used for funding purposes ,
not based on projected benefits obligation
•
Because all changes are recognized immediately (i.e.
actuarial gains/losses and post service costs), pension
expense is highly variable from year to year
6

7
•
Used to accumulate information needed for
the formal journal entries and to keep track
of the relevant pension plan items and
components reported off-balance sheet
The Pension Worksheet
The Pension Worksheet

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Immediate Recognition - Example
Immediate Recognition - Example
General Journal Entries Memo Record
Items Annual
Pension
Expense
Cash Accrued
Pension
A/L
Accrued
Benefit
Obligation
Plan Assets
Bal. Jan 1 2010 0 100,000 Cr. 100,000 Dr.