Pension Plan Memo

952 words 4 pages
Pension Plan Memo

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ACC/541

13 February 2012
Daphne Wagner

MEMORANDUM

TO: All Executives

FROM: Chief Executive Officer

DATE: February 13, 2012

SUBJECT: Required Reporting on Pension Plans

CC: Board of Directors

Our company has been providing their employees with a pension plan for many years. However, these benefits plans have to be reviewed and possibly revised after the recent acquisition of XYZ Company. Through the use of a funding agency, payments are invested so that periodic payments can be made to the employee during retirement. Defined contribution and defined benefit are the two most common types of pension plans.
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Employees are entitled to any benefits earned to date. However, reception of the benefit is not mandatory. Employees, who leave the firm’s employment before retirement age, as dictated by law, may have their funds held until age 70. Moreover, for those who leave the company early, the funds are held in a trust until retirement age is reached. Benefits must begin no later than April 1 following the last year of employment.

Other Postretirement Plans

In addition to the defined contribution and defined benefits plan, employees offer other incentives such as healthcare, life insurance, and tuition assistance. These benefits are called other postemployment benefits or OPEBs. Schroeder, et al. suggests healthcare and life insurance benefits are the most common. The similarity of these benefits to the defined benefits pension plan require disclosure as set forth by SFAS No. 106 “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” The standard requires that prior service costs and transition obligations be amortized. The interest is, therefore, calculated on a discounted rate based on the accumulated amount on the postretirement obligation.

Segments

SFAS 131 defines a segment as “a component of the enterprise” that earns money and incurs expenses. The chief decision-maker determines the use of the resources and which discrete financial information is available for use. Disposing of a segment, meeting the aforementioned

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