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19 Cards in this Set

  • Front
  • Back
What is a pension plan?
an arrangement whereby an employer provides benefits to employees after they retire for services they provided while they were working.
Pesion plan accounting can be divided into what two categories?
-accounting for the employer
-accoutning for the pension fund
What is a contributory plan?
The employees bear part of the cost of the stated benefits or voluntarily make payments to increase their benefits.
What is a non contributory plan?
the employer bears the entire cost.
What is a qualified pension plan?
are in accord with fed income tax requirements that permit deductibility of the employers contributions to the pension fund and tax-free status of earnings from pension fund assets.
Should the pension fund be a seperate legal and aacounting entity?
yes, it should have its own books and financial statements.
What are the two most common type of pension plans?
defined contribution plans
defined benefit plans
Define defined contribution plan?
the employer agrees to contribute to a pension trust a certain sum each period based on a formula. Only the employer's contribution is defined
What is the job of the independent third party trustee?
act on behalf of the beneficiaries. Assume ownership of the pension assets and is accountable for their investment and distribution.
What is the employers responsibility in a defined contribution plan?
it is to make a contribution each year based on the formula established in the plan.
What is the employer's annual cost (pension expense)?
the amount that it is obligated to contribute to the pension trust.
How is the accounting for a defined contribution plan?
A liability is reported on the B/S only if the contribution has not been made in full and an asset is reported only if more than the required amount has been contributed.
What disclosures are required in defined contribution plan?
plan description, including employee groups covered, the basis for determining contributions, and the nature and effect of significant matters affecting comparability.
What is the common formula for defined benefit plan?
the formula that is typically used provides for the benefits to be a function of the employee's years of service and the employee's compensation level when he nears retirement.
Who is the beneficiary in a defined contribution trust?
The employee
Who is the beneficiary in a defined benefit trust?
The employer
Explain why the employer is the beneficiary in a defined benefit trust?
the trust asset and liabilities belong to the employer. Any shortfall in the accumulated assets held by the trust must be made up by the employer. Any excess accumulated in the trust can be recaptured by the employer.
Why is the accounting for defined benefit plans complex?
benefits are defined in terms of uncertain future variables, an appropriate funding pattern must be established.
Why are defined benefit plans risky for employers?
because they must be sure to make enough contributions to meet the cost of benefits that are defined in the plan.