Chapter 20 - Accounting for pensions and postretirement benefits. In this chapter students will be able to: Distinguish between accounting for the employer’s pension plan and accounting for the pension fund, identify types of pension plans and their characteristics, explain alternative measures for valuing the pension obligation. | PREVIEW OF CHAPTER 20 Intermediate Accounting 16th Edition Kieso ● Weygandt ● Warfield Understand the fundamentals of pension plan accounting. Use a worksheet for employer’s pension plan entries. Describe the accounting and amortization of prior service costs. LEARNING OBJECTIVES Explain the accounting and amortization for unexpected gains and losses. Describe the requirements for reporting pension plans in financial statements. After studying this chapter, you should be able to: Accounting for Pensions and Postretirement Benefits 20 LO 1 An arrangement whereby an employer provides benefits (payments) to retired employees for services they provided in their working years. Pension Plan Administrator Contributions Employer Retired Employees Benefit Payments Assets & Liabilities PENSION PLAN ACCOUNTING LO 1 Pension plans can be: Contributory: employees voluntarily make payments to increase their benefits. Noncontributory: employer bears the entire cost. Qualified pension plans: offer tax benefits. Pension fund should be a separate legal and accounting entity. LO 1 PENSION PLAN ACCOUNTING LO 1 ILLUSTRATION 20-2 Pension Funds and Pension Expense The two most common types of pension plans are defined contribution plans and defined benefit plans. PENSION PLAN ACCOUNTING Defined-Contribution Plan Defined-Benefit Plan Employer contribution determined by plan (fixed) Risk borne by employees Benefits based on plan value Benefit determined by plan Employer contribution varies (determined by Actuaries) Risk borne by employer Actuaries make predictions (called actuarial assumptions) of mortality rates, employee turnover, interest and earnings rates, early retirement frequency, future salaries, and any other factors necessary to operate a pension plan. LO 1 PENSION PLAN ACCOUNTING Defined contribution plans have become much more popular with employers than defined benefit plans, as indicated in the chart below. One reason is that they are cheaper. Defined contribution plans often . | PREVIEW OF CHAPTER 20 Intermediate Accounting 16th Edition Kieso ● Weygandt ● Warfield Understand the fundamentals of pension plan accounting. Use a worksheet for employer’s pension plan entries. Describe the accounting and amortization of prior service costs. LEARNING OBJECTIVES Explain the accounting and amortization for unexpected gains and losses. Describe the requirements for reporting pension plans in financial statements. After studying this chapter, you should be able to: Accounting for Pensions and Postretirement Benefits 20 LO 1 An arrangement whereby an employer provides benefits (payments) to retired employees for services they provided in their working years. Pension Plan Administrator Contributions Employer Retired Employees Benefit Payments Assets & Liabilities PENSION PLAN ACCOUNTING LO 1 Pension plans can be: Contributory: employees voluntarily make payments to increase their benefits. Noncontributory: employer bears the entire cost. Qualified pension plans: offer tax
