Pension Plan Memo
TO: CEO
FROM:
DATE: November 3, 2014
SUBJECT: Pension Plans
With the recent acquisition of another company, the company acquired two different pension plans and two segments that do not flow with the company. The company is unfairly with the requirements in reporting the two pension plans. Also the company needs to determine the correct method for the two segments to be eliminated. Thus, the memo describes the reporting requirements for the pension plans of defined contribution, defined benefit, and other postretirement plans. The memo also discusses the process to eliminate the unwanted segments.
Defined Contribution
A defined contribution plan is one of the two most frequently used pension plans. “A defined contribution plan set forth …show more content…
According to Schroeder, Clark, & Cathey (2011), “a defined benefit plan specify the amount of pension benefits to be paid out to plan recipients in the future” (p. 456). In this plan, the employer states they will pay a percentage of the average of the employee’s highest five years’ salary. The reporting requirements for a defined benefit plan are much more complicated than the defined contribution plan. The company will use a benefit plan formula to determine the cost. The company “must then recognize the difference between the plans’ projected benefit obligation and its fair value of plan assets as either an asset or a liability” (Shaw, 2009, Balance-Sheet Reporting Under SFAS 158). The projected benefit obligation is the actuarial present value formulated from the benefit formula. The company also has to …show more content…
A schedule reconciling the funded status of the plan
d. The weighted-average assumed discount rate and rate of compensation increase
e. Amounts and types of securities included in the plan assets (Financial Accounting Standards Board, 1985, Disclosures).
Other Postretirement Plans
Other postretirement plans are non-cash benefits available for retirees. Examples of these benefits can be health insurance, life insurance, legal services, and tuition credits. The reporting for these plans are similar to the defined benefit plan. They also cost the company substantial amount of money like the defined benefit plan.
Elimination of Segments
In order to eliminate the two segments the company acquired, the firm must first identify the cost associated with the segments. The firm would put the cost into two categories, avoidable costs and unavoidable costs. The avoidable cost are the cost that will go away once the segment is gone. The unavoidable costs will remain even once the segment eliminated. The unavoidable costs will then be distributed to the remaining segments.
References
Financial Accounting Standards Board. (1985). Statement of Financial Accounting Standards No. 87. Retrieved from
FROM:
DATE: November 3, 2014
SUBJECT: Pension Plans
With the recent acquisition of another company, the company acquired two different pension plans and two segments that do not flow with the company. The company is unfairly with the requirements in reporting the two pension plans. Also the company needs to determine the correct method for the two segments to be eliminated. Thus, the memo describes the reporting requirements for the pension plans of defined contribution, defined benefit, and other postretirement plans. The memo also discusses the process to eliminate the unwanted segments.
Defined Contribution
A defined contribution plan is one of the two most frequently used pension plans. “A defined contribution plan set forth …show more content…
According to Schroeder, Clark, & Cathey (2011), “a defined benefit plan specify the amount of pension benefits to be paid out to plan recipients in the future” (p. 456). In this plan, the employer states they will pay a percentage of the average of the employee’s highest five years’ salary. The reporting requirements for a defined benefit plan are much more complicated than the defined contribution plan. The company will use a benefit plan formula to determine the cost. The company “must then recognize the difference between the plans’ projected benefit obligation and its fair value of plan assets as either an asset or a liability” (Shaw, 2009, Balance-Sheet Reporting Under SFAS 158). The projected benefit obligation is the actuarial present value formulated from the benefit formula. The company also has to …show more content…
A schedule reconciling the funded status of the plan
d. The weighted-average assumed discount rate and rate of compensation increase
e. Amounts and types of securities included in the plan assets (Financial Accounting Standards Board, 1985, Disclosures).
Other Postretirement Plans
Other postretirement plans are non-cash benefits available for retirees. Examples of these benefits can be health insurance, life insurance, legal services, and tuition credits. The reporting for these plans are similar to the defined benefit plan. They also cost the company substantial amount of money like the defined benefit plan.
Elimination of Segments
In order to eliminate the two segments the company acquired, the firm must first identify the cost associated with the segments. The firm would put the cost into two categories, avoidable costs and unavoidable costs. The avoidable cost are the cost that will go away once the segment is gone. The unavoidable costs will remain even once the segment eliminated. The unavoidable costs will then be distributed to the remaining segments.
References
Financial Accounting Standards Board. (1985). Statement of Financial Accounting Standards No. 87. Retrieved from