Acc 541 Essay

923 Words Apr 3rd, 2012 4 Pages
Reporting Paper
ACC 541
November 21, 2011
Calie Lukenbill
Dr. Sonja Wilson

To: Sonja Wilson
From: Calie Lukenbill
Date: November 21, 2011
Subject: Pensions

As you may know there are two types of pension plans that are most commonly used: a defined contribution plan and a defined benefit plan. “A defined contribution plan sets forth a certain amount that the employer is to contribute to the plan each period (Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011). “A defined benefit plan specifies the amount of pension benefits to be paid out to plan recipients in the future. Companies that use this plan must make sufficient contributions to the funding agency in order to meet benefit requirements
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The risks lie with the employers because they must make large enough contributions to meet what was promised and the amount of pension expense may not be equal to the cash contributed to the plan (Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011).

Employers are also required to disclose the following information if they chose to use the defined benefit plan: “1. A description of the plan, including employee groups covered, type of benefit formula, funding policy, types of assets held, significant matters affecting comparability or information for all periods presented, 2. The amount of net periodic pension cost for the period showing separately the service cost component, the interest cost component, the actual return on assets for the period, and the net total of other components, 3. A schedule reconciling the funded status of the plan with amounts reported in the employer’s statement of financial position” (Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011).

APB Opinion No. 8 states that there are some basic problems with the accounting for the defined benefit pension plan. The problems identified are: “1. Measuring the total amount of cost associated with a pension plan, 2. Allocating the total pension costs to the proper accounting periods, 3. Providing the cash to fund the pension plan, and 4. Disclosing the significant aspects of the pension plan on

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