Pension Accounting, written by Patricia A. Williams, MA, MBA, DBA, Associate Professor at Fordham University, comprehensively analyzes various authoritative pronouncements on accounting by pension plans for their holdings and on employers accounting for pensions and other postretirement benefits.
Although accounting requirements for pensions and other postretirement benefits generally parallel one another, important distinctions exist. This Portfolio identifies the significant differences, focusing on the recognition, measurement, and disclosure of defined benefit pension and other postretirement benefit plans for publicly traded corporations.
This Portfolio explains how U.S. tax laws regarding pension and other postretirement benefits influence and intersect with US GAAP. It focuses on the standards that were implemented between 1980 and 2003 to better align US GAAP with federal regulations and to improve the financial reporting of pensions and other postretirement benefits, and it identifies ways in which FAS 158 has significantly amended prior pronouncements.
In addition, Pension Accounting explains how financial analysts assess the implication of a firm's pension-related obligations on profitability, risk, and cash flow.
A plethora of working papers provide numerous additional resources, including:
Pension Accounting allows you to benefit from:
This Portfolio is included in the Accounting Policy & Practice Series, a comprehensive series of titles which explain, explicate, and offer commentary on a wide range of accounting and financial management topics, including revenue recognition, income taxes, leasing, business combinations, debt instruments, risk management, internal controls and more.
Detailed Analysis
I. Objectives and Scope of Portfolio
A. Objectives
B. Scope
II. Federal Regulations and Reporting Requirements
Introductory Material
A. History of ERISA
1. Pre-ERISA Legislation
2. Administration of ERISA
a. Department of Labor (DOL)
b. Internal Revenue Service (IRS)
c. The Pension Benefit Guaranty Corporation (PBGC)
3. Actuaries
B. Federal Filing Requirements Under ERISA
1. Form 5500
2. ERISA Compliance Quick Checklist
3. Relationship to Financial Analysis
III. General Background on Pension Accounting
A. Overview
B. Historical Perspective
1. Pre-FASB
2. FASB
C. Types of Pension Plans
1. Defined Contribution Pension Plan
2. Defined Benefit Pension Plan
a. Pension Benefit Formulas
(1) Flat-Benefit Formula
(2) Career-Average Formulas
(3) Final-Pay Formulas
b. Reducing the Pension Obligation
3. Cash-Balance Pension Plan
D. Establishing a Defined Benefit Plan
1. Single-Employer, Multi-Employer, and Multiple-Employer Plans
a. Single-Employer Plans
b. Multi-Employer Plans
c. Multiple-Employer Plans
2. Minimum Vesting Standards
IV. Accounting and Reporting by Defined Benefit Pension Plans (FAS 35)
A. Scope
B. Background
C. Items That Must Be Reported
1. Net Assets Available for Benefits
2. Changes in Net Assets Available for Benefits
3. Actuarial Present Value of Accumulated Plan Benefits
4. Statement of Changes in Accumulated Benefits
5. Additional Financial Statement Disclosures
D. Primary Objective of Plan Financial Statements
V. FAS 87: Employers' Accounting for Pensions
A. Background
C. Features Retained
1. Delayed Recognition
2. Net Cost
3. Offsetting Liabilities and Assets
D. Fundamental Changes
1. Overview
2. Attribution Methods
a. "Benefit/Years of Service" Approach
b. Commitment to Future Increased Benefits
c. Delayed Vesting of Benefits
3. Assumptions and Estimates
E. Measurement Issues
1. Measuring the Pension Obligation
2. Determining the Discount Rate
3. Measurement of Plan Assets
4. Measurement Date
F. The Pension Benefit Obligation (PBO) and Plan Assets
1. Perspective
2. Transactions Affecting the PBO
3. Transactions Affecting Plan Assets
G. Net Periodic Pension Cost
2. Basic Elements of Net Periodic Pension Cost
a. Service Cost
b. Interest Cost
c. Expected Return on Plan Assets
H. Additional Components of Net Periodic Pension Cost
2. Transition Assets and Liabilities
3. Prior Service Costs (PSC)
4. Unrecognized Actuarial Losses and Gains
I. Illustrations
J. Reconciliation of the Funded Status of the Plan
K. Comprehensive Pension Worksheet
L. Minimum Pension Liability
M. Additional Issues
1. Business Combinations
2. Non-U.S. Pension Plans
3. Pension Accounting for Smaller Employees
4. Accounting for Pension Benefits Paid by Employers after Insurance Companies Fail to Provide Annuity Benefits
5. Defined Contribution Plans
6. MultiEmployer and Multiple-Employer Plans
VI. Settlements, Curtailments, and Terminations of Defined Benefit Pension Plans (FAS 88)
B. Settlements
C. Curtailments
D. Relationship Among Settlements, Curtailments and Other Events
E. Accounting for Plan Settlements and Curtailments
F. Termination Benefits
G. Asset Reversion
VII. Employers' Accounting for Postretirement Benefits Other than Pensions (FAS 106)
B. Comparison of Accounting for Pensions and Accounting for Other Postretirement Benefits
C. Basic Elements of Accounting for Postretirement Benefits Other Than Pensions
1. Postretirement Benefit Obligation
2. Plan Assets
3. Net Periodic Postretirement Benefit Cost
c. Return on plan assets
d. Amortization of Unrecognized Prior Service Cost (PSC)
e. Amortization of Unrecognized Gains and Losses
f. Amortization of the Unrecognized Transition Obligation or Asset
D. Accounting for Transitions
E. Transition Asset or Liability
F. Comprehensive Example
G. Accounting for Settlement, Curtailment and Termination Benefits for a Postretirement Benefit Plan
1. Settlements
2. Plan Curtailment
3. Termination Benefits
H. Additional Issues
1. Rate-Regulated Enterprises
2. Plan Assets under FASB Statement No. 106
3. Transfer of Excess Pension Assets to a Retiree Health Care Benefits Account
4. MultiEmployer and Multiple Employer Plans
5. Business Combinations
6. Defined Contribution Plans
VIII. Employers' Accounting for Postemployment Benefits (FAS 112)
B. Accounting for Postemployment Benefits
IX. Employers' Disclosures about Pensions and other Postretirement Benefits: FAS 132
B. FAS 132(R) and the Conceptual Framework
C. Disclosure Requirements Under FAS 132(R)
1. Plan Assets
2. Benefit Obligation
3. Net Periodic Benefit Cost
4. Assumptions
5. Benefits and Contributions
6. Other Postretirement Benefits
D. Required Disclosure in the Annual Reporting Of Pension and Other Postretirement Benefits
E. Interim-Period Disclosures for a Publicly Traded Entity
X. General Motors' Pension Footnote as Presented in the Company's Annual Report for 2004
A. Contributions to Pension Plans
B. Reconciliation of the Pension Obligation and Plan Assets
C. The Accumulated Benefit Obligation
D. The Components of Pension and Other Postretirement Expenses
E. Estimates and Assumptions
F. Classification of Pension Plan Investments
G. Estimated Future Benefit Payments
XI. Pension Accounting and Quality of Earnings
A. Conservatism and Choice of Accounting Method
B. Earnings Management-Estimates and Assumptions
C. Permanent Earnings and Income from Continuing Operations
D. Transparency and Disclosure
E. Analytical Tools for Evaluating Companies with Defined Benefit Plans
1. Ratio Analysis
a. Plan Assets/Projected Benefit Obligation
b. Pension Cost/Operating Income
c. Funded Status/EBITDA
d. Funded Status/Market Capitalization
e. Pension Plan Assets/Firm Enterprise Value
2. Assessing Earnings Management
XII. Trends and Open Issues
A. Trends
1. Plan Types
2. Changes in Retirees Health Care Benefits
B. Issues
1. Estimates and Assumptions
2. Investing Plan Assets
3. Pension Disclosures
4. Compensated Absences
XIII. IFRS and Pension Costs
A. Scope of Section
B. International Financial Reporting Standards
1. Categories of Standards
2. Nature of IFRS
3. Objectives of IFRS
C. Historical Perspective on IFRS Concerning Employee Benefits
1. IAS 19 Employee Benefits
2. IAS 26 Accounting and Reporting by Retirement Benefit Plans
D. Types Of Post-Employment Benefit Plans
XIV. Accounting and Reporting by Retirement Benefit Plans Under International Accounting Standards
B. Financial Statements of a Retirement Benefit Plan In General
1. Defined Contribution Plans
2. Defined Benefit Plans
C. Statement of Net Assets Available for Benefits
D. Actuarial Present Value of Promised Retirement Benefits
E. Statement of the Net Assets Available For Benefits, the Actuarial Present Value of Promised Retirement Benefits and the Resulting Excess or Deficit
F. Statement of Changes in Net Assets Available for Benefits
G. Other Disclosures
XV. Employers Accounting for Pensions Under International Financial Reporting Standards
B. Convergence With US GAAP
C. Post-Employment Benefits
1. Definition
2. Types of Arrangements Covered
D. Overview of IAS 19 Principles
E. Defined Contribution Plans
2. Disclosure
F. Defined Benefit Plans
1. Main Features of IAS 19 Approach
2. The Simple Case
3. The Complexities
a. Funded Defined Benefit Plans
b. Unfunded Defined Benefit Plans
4. Measuring the Defined Benefit Obligation
5. Measuring the Present Value of the Defined Benefit Obligation
6. Plan Assets
7. Returns on Plan Assets
8. Asset Ceiling
9. Minimum Liability
10. Measurement Date
11. Current Service Cost
12. Past Service Cost
13. Actuarial Gains and Losses
14. Curtailments and Settlements
15. Transitional Provisions
16. Presentation
17. Disclosure
a. Accounting Policies
b. Present Value of Defined Benefit Obligation
c. Plan Assets
d. Amounts Not Recognized on Balance Sheet
e. Income Statement
f. Statement of Recognized Income and Expense
g. Historical Amounts
G. Application of IAS 19 to Different Types of Plans
1. Multi-Employer Plans
2. Group Administration Plans
3. State Plans
4. Insured Plans
Working Papers
TABLE OF WORKSHEETS
Worksheet 1 ABBREVIATIONS
Worksheet 2 Legislation Prior to the Passage of ERISA
Worksheet 3 Albertsons' Salaried Employees Pension Plan: Form 5500 Schedule B - Actuarial Information for Plan Year 2001
Worksheet 4 Albertsons' Salaried Employees Pension Plan: Form 5500 Schedule H - Financial Information for Plan Year 2001
Worksheet 5 ERISA Compliance Quick Checklist
Worksheet 6 Example Statement of Net Assets Available for Benefits
Worksheet 7 Example Statement of Changes in Net Assets Available for Benefits
Worksheet 8 Example Statement of the Actuarial Present Value of Accumulated Plan Benefits
Worksheet 9 Example Statement of Changes in Accumulated Benefits
Worksheet 10 A Basic Pension Worksheet: The Belmont Company
Worksheet 11 Determining the Average Remaining Service Life of Employees Covered by a Pension Plan
Worksheet 12 Computation of Amortization Charge (Corridor Test) for 2003
Worksheet 13 Recognition of Accrued/Prepaid Pension Cost at Transition
Worksheet 14 Reconciliation Schedule as of Date of Adoption of FAS 87 (Past Contributions Equal to Net Pension Cost)
Worksheet 15 Reconciliation Schedule as of Date of Adoption of FAS 87 (Past Contributions Lower Than Net Pension Cost)
Worksheet 16 Reconciliation Schedule as of Date of Adoption of FAS 87 (Past Contributions Greater Than Net Pension Cost)
Worksheet 17 Reconciliation Schedule: Four Scenarios
Worksheet 18 A Comprehensive Pension Worksheet
Worksheet 19 Accounting for Plan Settlements and Curtailments
Worksheet 20 Comprehensive Worksheet for Postretirement Benefits Other Than Pensions
Worksheet 21 Annual Disclosure Requirements Under FAS 132 (Revised)
Worksheet 22 Interim Period Disclosures FAS 132 (R)
Worksheet 23 General Motors Corporation Pension Note
Worksheet 24 Defined Contribution Plan or Defined Benefit Plan Under IAS 26: Statement of Net Assets Available for Benefits
Worksheet 25 Defined Benefit Plan Under IAS 26: Statement of Net Assets Available for Benefits, Actuarial Present Value of Promised Retirement Benefits and Excess or Deficit
Worksheet 26 Defined Contribution Plan or Defined Benefit Plan Under IAS 26: Statement of Changes in Net Assets Available for Benefits
Worksheet 27 Form 20F Disclosures: Reconciliations from IFRS to US GAAP for Defined Benefit Plans
Worksheet 28 A Basic Pension Worksheet
Worksheet 29 Comprehensive Pension Worksheet for a Funded Defined Benefit Plan (IFRS)
Worksheet 30 Comprehensive Pension Worksheet for an Unfunded Defined Benefit Plan
Worksheet 31 Alternative Approaches to the Recognition of Actuarial Gains and Losses Under IFRS
Worksheet 32 IAS 19 Employee Benefits Disclosure and Presentation
Worksheet 33 Pensions: Sample Disclosures by International Companies
Worksheet 34 List of Significant Accounting Pronouncements Principally Discussed
Bibliography
OFFICIAL AUTHORITIES
FASB Financial Accounting Standards
Emerging Issues Task Force
Accounting Interpretations
Other Accounting Literature
Federal Regulations
IRS Publications
UNOFFICIAL AUTHORITIES
Accounting Treatises and Handbooks
Annual Reports
Articles
Referenced Websites