Many business organizations have been concerned with providing for employee retirement since the late 1800s. During recent decades, a marked increase in this concern has resulted in the establishment of private pension and other post-retirement benefit plans in most companies of any size.
The substantial growth of these plans, both in the numbers of employees that they cover and in the types and value of retirement benefits, has increased the significance of the cost of these benefit plans in relation to the financial position, results of operations, and cash flows of many companies. In working with the benefit plans, accountants encounter a variety of terms. Each benefit plan component must be dealt with appropriately if generally accepted accounting principles are to be reflected in the financial statements of entities that offer these plans.
Instructions
(a) How does a contributory plan differ from a non-contributory plan?
(b) Differentiate between accounting for the employer and accounting for the benefit plan.
(c) Explain the terms “funded” and “accrued benefit liability or asset” as they relate to the employer and the benefit plan itself.
(d) Distinguish between each of the following sets of terms as they relate to pension plans and their treatment under ASPE and IFRS:
1. Current service cost and past service cost
2. Asset experience gain/loss and liability experience gain/loss
(e) Explain how the accounting for other post-retirement benefit plans with benefits that vest or accumulate differs from the accounting for defined benefit pension plans, if there is any difference.