Wikipedia:Files for upload/Wizard/Help: Difference between revisions
Content deleted Content added
m Reverted edits by 27011998ishere (talk) to last version by Shellwood |
No edit summary |
||
Line 1:
_PENSIONS
Nature of pension plans
A pension plan is an arrangement whereby an employer provides benefits (payments) to employees after they retire for services they provided while they were working
Pension accounting may be divided & separately treated as accounting for employer & accounting for the pension fund
Co. or employer is the organisation sponsoring the pension plan-incurs costs & makes contributions to the pension fund
Some plans are contributory, i.e. employees bear part of the cost of the stated benefits or voluntarily make payments to increase their benefits
Other plans are non contributory in which employer bears the entire cost
Fund should be a separate legal and accounting entity for which a set of books is maintained & financial statements are prepared.
Defined contribution plan
The employer agrees to contribute to a pension trust a certain sum each period based on a formula. Formula may consider such factors as age, length of employee service, employer’s profits & compensation level.
Only the employer’s contribution is defined no promise is made regarding the ultimate paid out to the employees. Size of the pension benefits that the employee finally collects under the plan depends on the amount contributed to the pension trust the income accumulated in the trust, &the treatment of forfeitures of funds caused by early termination of the employees
Amount originally contributed are usually turned over to an independent 3rd party trustee who acts on behalf of the beneficiaries the participating employees. Accounting for a defined contribution plan is straightforward employee gets the benefit of gain or the risk of loss from the assets contributed to the pension plan.
Employer’s annual cost (pension expense) is the amount that it’s obligated to contribute to the pension trust. Disclosures required by the employer under a defined contribution plan are description, including employee groups covered, the basis for determining contributions & nature & effect of significant matters affecting comparability from period to period.
Defined benefit plan
This defines the benefits that the employee will receive at the time of retirement. Employees are beneficiaries of a defined contribution trust, but the employer is the beneficiary of a defined trust. Trust’s primary purpose under a defined benefit plan is to safeguard assets & to invest them so that these will be enough to pay the employer’s obligation t the employees when they retire.
As long as the plan continues, the employer is responsible for the payment of the defined pension (without regard to what happens in the trust). 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, either through reduced future funding/through a reversion of funds.
| |||