ACC 3302--Chapter 20--Pension Plans
Terms
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- Contributory Plan
- a plan in which employees bear part of the cost of the plan and make contributions from their salary in the pension fund
- Pension Benefit Formula
- the basis for determining payments to which employees will be entitled during retirement
- Defined Contribution Plan
- a plan in which the employer's contribution is determined based on a specified formula, and any future benefits are limited to those that can be provided by the contributions and the returns earned on the investment of those contributions; once this is paid, the employer has no additional liability to to provide pension benefits
- Settlement Rate
- the rate at which the pension benefits can be effectively settled. The rate is used in the calculation of interest cost (provided by the actuary)
- Noncontributory Plan
- a plan in which the entire pension cost is borne by the employer
- Accumulated Other Comprehensive Income
- the sum of the net changes in other comprehensive income since the beginning of the company's operations
- Other Comprehensive Income
- Non-owner changes in equity during a period that bypass net income. Non-owner changes in equity are all those except investments by owners and distributions to owners. This is closed into Accumulated Other Comprehensive Income at the end of each period
- Market-related Value of Plan Assets
- a balance used to calculate the expectd return on plan assets. This value can be either fair market value or a calculated value that recognizes changes in fair value in a systematic and rational manner over not more than five years
- Vested Benefits
- benefits for which the employee's right to receive a present or future pension benefit is no longer contingent on remaining in the service of the employer
- Expected Return on Plan Assets
- an amount calculated by applying the expected long term rate of return on plan assets to the fair market value or a market-related value of the plan assets at the beginning of the period
- Defined Benefit Plan
- a plan that states the benefits to be received by the employees after retirement or the method of determining such benefits. The employer accepts the risk of the plan's investment performance
- 10% Corridor
- amortization of an unrecognized net gain or loss is recorded only if the absolute value of the beginning balance in Unrecognized Net Gain or Loss exceeds 10% of the greater of the Projected Benefit Obligation at the beginning of the year or the market-related value of the Plan Assets at the beginning of the year; represents a materiality threshold for determining when gains and losses are sufficiently large to require recognition
- Plan Assets
- One of the two ways there can be a gain or loss is a change in value of this which is caused by a difference in the actual and expected returns on plan assets
- Prior Service Cost
- the cost of retroactive benefits granted in a plan amendment or at the initial adoption of the plan. The cost is the present value of the additional benefits attributed by the pension benefit formula (amount provided by the actuary)
- Unfunded Plan
- a plan in which no periodic payments are made to an external agency. The pension payments to retired employees are made from current company resources
- Actual Return on Plan Assets
- the difference between the fair value of the plan assets at the end of the period and the fair value at the beginning of the period adjusted for contributions and payments of benefits during the period. The increase in pension funds results from interest, dividends, and changes in the fair market value of the plan assets.
- Actuarial Assumptions
- estimates of the occurence of future events affecting pension costs, such as mortality rates, employee turnover, future earnings and interest rates, disablement and retirement rates
- Actuary
- an individual trained in an applied branch of mathmatetics; accountants rely on these for predictions such as mortality rates, employee turnover, future earnings and interest rates, and the calculations of various measures that affect pension costs
- Service Cost
- the actuarial present value of benefits attributed by the pension benefit formula to services rendered by employees during the current period (amount provided by the actuary)
- Postretirement Benefit Plan
- a deferred compensation arrangement whereby an employer promises to exchange future benefits for employees' current services. These benefits include health care benefits, legal, educational, and advisory services provided to retirees, their spouses, dependents, and beneficiaries. The primary one of these is health care benefits
- Projected Benefit Obligation
- the actuarial present value, at a specified date, of all the benefits attributed by the pension benefit formula to employee services rendered prior to that date. This amount includes the future increases in the compensation that the company anticipates that it will pay to employees during the remainder of their employment (amount provided by the actuary)
- Projected Benefit Obligation
- One of the two ways there can be a gain or loss is a change in value of this which is caused by a change in actuarial assumptions
- Pension Plan
- an agreement between a company and its employee group whereby the company promises to provide income to its retired employees in return for the services that were provided by the employees during their employment
- Funded Plan
- a plan in which the company makes periodic payments to a funding agency that assumes the responsibility for safeguarding and investing the pension assets to earn a return on the investment for the pension plan, and for making payments to the recipients of the benefits
- Accumulated Benefit Obligation
- the actuarial present value of all the benefits attributed by the pension formula to employee service before a specified date. The amount is based on current and past compensation levels of employees and therefore includes no assumptions about future pay increases.