Pension Plans and Operating Segments
Pension Plans and Operating Segments
Pension Plans and Operating Segments
Memorandum
To: CEO
From: Controller
Re: Pension plans and operating segments for newly acquired company The intent of this memo is to answer questions regarding the pension plans and operating segments of the company we recently acquired with 100% ownership. This company has two operating segments, each with its own pension plan. Reporting requirements for these issues are explained below.
Pension Plan Reporting Pension plans include defined contribution plans, defined benefit plans, and other postretirement benefits (OPRBs). Each of these plans has separate reporting requirements.
Defined Contribution Plans A defined contribution plan requires the employer to set aside a certain amount each period to fund the employee’s pension. The employee is not guaranteed a specific pension benefit upon retirement. The ultimate benefit depends on the return of invested funds in the plan, and contributions are expensed during the annual period in which they occur. Reporting requirements for defined contribution plans are relatively simple and include disclosure of existence of the plan, the employee groups covered, the basis for determining contributions, and significant matters affecting comparability between periods (Schroeder, Clark, & Cathey, 2011).
Defined Benefit Plans Required reporting for defined benefit plans is significantly more complicated. Reporting standards, based on the 2006 publication of SFAS No. 158, require companies to recognize the funded status of pension plans and report them in the statement of financial position as an asset or a liability (Financial Accounting Standards Board, SFAS No. 158, 2006). The funded status is calculated by subtracting the projected pension obligation from the fair value of plan assets. The projected pension obligation, which includes future salary increases, is calculated as the actuarial present value of
Pension Plans and Operating Segments
Memorandum
To: CEO
From: Controller
Re: Pension plans and operating segments for newly acquired company The intent of this memo is to answer questions regarding the pension plans and operating segments of the company we recently acquired with 100% ownership. This company has two operating segments, each with its own pension plan. Reporting requirements for these issues are explained below.
Pension Plan Reporting Pension plans include defined contribution plans, defined benefit plans, and other postretirement benefits (OPRBs). Each of these plans has separate reporting requirements.
Defined Contribution Plans A defined contribution plan requires the employer to set aside a certain amount each period to fund the employee’s pension. The employee is not guaranteed a specific pension benefit upon retirement. The ultimate benefit depends on the return of invested funds in the plan, and contributions are expensed during the annual period in which they occur. Reporting requirements for defined contribution plans are relatively simple and include disclosure of existence of the plan, the employee groups covered, the basis for determining contributions, and significant matters affecting comparability between periods (Schroeder, Clark, & Cathey, 2011).
Defined Benefit Plans Required reporting for defined benefit plans is significantly more complicated. Reporting standards, based on the 2006 publication of SFAS No. 158, require companies to recognize the funded status of pension plans and report them in the statement of financial position as an asset or a liability (Financial Accounting Standards Board, SFAS No. 158, 2006). The funded status is calculated by subtracting the projected pension obligation from the fair value of plan assets. The projected pension obligation, which includes future salary increases, is calculated as the actuarial present value of
References: Financial Accounting Foundation. (2012). 280-10-50 Segment Reporting. Retrieved September 22, 2012, from FASB: https://asc.fasb.org/viewpage?nav_type=goto&ovcmd=goto&codification_text=280-10-50-11&codification_submit.x=23&codification_submit.y=9 Financial Accounting Standards Board. (1990, 12). Summary of Statement No. 106. Retrieved September 22, 2012, from FASB: http://www.fasb.org/summary/stsum106.shtml Financial Accounting Standards Board. (2006, September). Statement of Financial Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans. Retrieved September 22, 2012, from FASB: http://www.fasb.org/cs/BlobServer?blobkey=id&blobwhere=1175820923452&blobheader=application%2Fpdf&blobcol=urldata&blobtable=MungoBlobs Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2011). Financial Accounting Theory and Analysis Text and Cases. Hoboken, NJ: John Wiley & Sons, Inc. Shaw, K. W. (2011, June 14). New Accounting Rules for Defined Benefit Pension Plans. Retrieved September 22, 2012, from The CPA Journal Online: http://www.nysscpa.org/cpajournal/2008/308/essentials/p32.htm