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Lecture note Government and not-for-profit accounting: Concepts and practices (7/e) – Chapter 10: Pensions and other fiduciary activities

Chapter 10 - Pensions and other fiduciary activities. In this chapter, the learning objectives are: Why pensions are important, distinctions between defined contribution and defined benefit pension plans, the relationships between an employer and its pension trust, main issues faced by government employers in accounting for pension plans,. | Chapter 10 Pensions and Other Fiduciary Activities © 2016 John Wiley & Sons, Inc. All rights reserved. 1 1 Thought to Ponder: Chapter 10 “The trust funds that the federal government has aren't the same as those you find in the private sector. You can't trust the federal government's and they aren't funded!” David Walker, former Comptroller General of the United States and President & CEO of the Peterson G. Foundation © 2016 John Wiley & Sons, Inc. All rights reserved. 2 2 Learning Objectives Why pensions are important Distinctions between defined contribution and defined benefit pension plans The relationships between an employer and its pension trust Main issues faced by government employers in accounting for pension plans How pension plans are accounted for Postemployment health care benefits Accounting for issues presented by agency funds issues presented by investment trust funds investment gains and losses Assets held in fiduciary funds What is an endowment Distinguish between . | Chapter 10 Pensions and Other Fiduciary Activities © 2016 John Wiley & Sons, Inc. All rights reserved. 1 1 Thought to Ponder: Chapter 10 “The trust funds that the federal government has aren't the same as those you find in the private sector. You can't trust the federal government's and they aren't funded!” David Walker, former Comptroller General of the United States and President & CEO of the Peterson G. Foundation © 2016 John Wiley & Sons, Inc. All rights reserved. 2 2 Learning Objectives Why pensions are important Distinctions between defined contribution and defined benefit pension plans The relationships between an employer and its pension trust Main issues faced by government employers in accounting for pension plans How pension plans are accounted for Postemployment health care benefits Accounting for issues presented by agency funds issues presented by investment trust funds investment gains and losses Assets held in fiduciary funds What is an endowment Distinguish between permanent and fiduciary funds © 2016 John Wiley & Sons, Inc. All rights reserved. 3 3 Why is pension accounting important? Magnitude of assets and liabilities involved California Public Employees’ Retirement System as of June 30, 2014 was $301.8 billion It has direct impact on public policy One of the most controversial issues of our era Pension is the sum of money paid to retired or disabled employees based on their years of employment. Although employees earn pension during years of employment, employers do not have to make actual cash payments until they retire. Benefits received and cash payments may be mismatched by many years Difficult accounting issues Amount of eventual cash payments to the employees may depend on variables unknown at the time employees provide service It is not obvious how eventual costs of benefits should be allocated to particular years when employees provide their services © 2016 John Wiley & Sons, Inc. All rights reserved. 4 Defined Contribution Plan .