Beruflich Dokumente
Kultur Dokumente
CHAPTER 17
QUESTIONS
1. Five taxes are based on gross payroll. The
costs of these taxes are borne by
employees and employers as follows:
mortality
tables.
The
employer
contribution
is
related
to
the
guaranteed benefits defined in the
plan. A defined contribution pension
plan provides employees pension
benefits that are determined by the
amount in the pension fund. A periodic
contribution amount is agreed to by the
employer, and the contributions and
investment earnings determine the
benefits to be received.
(b) A contributory pension plan is one in
which employees make contributions to
the pension fund in addition to those
made by the employer. Under
noncontributory pension plans, the
employer pays the entire cost of the
plan.
(c) A multiemployer pension plan is one
administered for the benefit of many
employers. Trade associations or
similar
groups
often
sponsor
multiemployer plans. Single-employer
pension plans are tailored to a specific
employer.
Generally,
they
are
administered by an outside trustee, and
the provisions are designed to meet
the
specific
needs
of the employees of the company
involved.
Employee Employer
Federal old-age,
survivors,
and disability............
Federal hospital insurance..........................
Federal unemployment insurance.........
State unemployment
insurance..................
Individual income tax...
X
X
X
103
104
Chapter 17
104
Chapter 17
105
106
Chapter 17
106
Chapter 17
107
PRACTICE EXERCISES
PRACTICE 171
1.
December 31
Wages Expense
Wages Payable
15,000
15,000
Wages are $5,000 ($25,000/5 days) per day. Three days (Monday, Tuesday, and
Wednesday) have elapsed during the week.
2.
January 5
Wages Payable
Wages Expense
Cash
PRACTICE 172
15,000
10,000
25,000
50,000
3,825
7,000
39,175
6,925
3,825
2,700
400
COMPENSATED ABSENCES
1.
Average Wage
Per Day
$160
200
250
Employee
1
2
3
Total
2.
Unused
Vacation Days
0
5
15
Wages Expense
Vacation Wages Payable
4,750
Wages Expense
Vacation Wages Payable
Cash ($4,750 + 10% raise)
475
4,750
PRACTICE 174
EARNINGS-BASED BONUS
Accrued Vacation
Wages Payable
$ 0
1,000
3,750
$4,750
4,750
5,225
B = 0.05 ($200,000 B)
B = $10,000 0.05 B
1.05 B = $10,000
B = $9,524
PRACTICE 175
POSTEMPLOYMENT BENEFITS
900,000
1,300,000
2,200,000
281,600
281,600
1.
Highest salary = $50,000 (future salary increases ignored with ABO)
Annual pension payment = $10,000 (2% 10 years $50,000)
Number of pension payments to be received after retirement = 15
Length of time until retirement = 25 years
Present value of 15 pension payments at retirement date (in 25 years):
PMT = $10,000, N = 15, I = 8% PV = $85,595
Present value of pension payments on January 1, 2005:
FV = $85,595, N = 25, I = 8% PV = $12,498
2.
Present value of 15 pension payments at retirement date (in 25 years):
PMT = $10,000, N = 15, I = 12% PV = $68,109
Present value of pension payments on January 1, 2005:
FV = $68,109, N = 25, I = 12% PV = $4,006
PRACTICE 177
1.
Estimated salary growth rate = 3%
Length of time until retirement = 25 years
Highest salary: PV = $50,000, N = 25, I = 3% FV = $104,689
Annual pension payment = $20,938 (2% 10 years $104,689)
Number of pension payments to be received after retirement = 15
Present value of 15 pension payments at retirement date (in 25 years):
PMT = $20,938, N = 15, I = 8% PV = $179,218
Present value of pension payments on January 1, 2005:
FV = $179,218, N = 25, I = 8% PV = $26,169
2.
Present value of 15 pension payments at retirement date (in 25 years):
PMT = $20,938, N = 15, I = 12% PV = $142,606
Present value of pension payments on January 1, 2005:
FV = $142,606, N = 25, I = 12% PV = $8,389
PRACTICE 178
1.
Projected benefit obligation
Pension fund
Accrued pension liability
$(10,000)
9,200
$
(800)
2.
Projected benefit obligation, January 1 $(10,000)
Service cost
(1,200)
Interest cost ($10,000 0.09)
(900)
Benefits paid to retirees
100
Projected benefit obligation, December 31$(12,000)
3.
Fair value of pension fund, January 1
$ 9,200
Actual return on pension fund
250
Contribution to pension fund
1,050
Benefits paid to retirees
(100)
Fair value of pension fund, December 31 $ 10,400
PRACTICE 179
Service cost
$1,200
Interest cost ($10,000 0.09)
900
Expected return on pension fund ($9,200 0.10) (920)
Pension expense
$1,180
1,180
1,050
1,180
1,050
Periodic
Net
Accrued
Pension
Unrecognized
Pension
Pension
Expense
Net Pension
Cost
Items
Expense
Cash
800
Balance January 1
PBO
10,000
a. Service cost
1,200
1,200
b. Interest cost
900
900
c. Actual return
250
d. Benefits paid
(Gain)/Loss
9,200
250
100
e. Deferred loss
FVPF
100
670
670
1,180
1,180
2. Annual Pension
Contribution
Balance December 31
1,050
1,050
930
1,050
12,000
10,400
670
2.
Service cost
Interest cost ($15,000 0.08)
Expected return on pension fund ($17,000 0.10)
Pension expense
$ 1,500
1,200
(1,700)
$ 1,000
$(1,100)
1,000
$ (100)
Service cost
Interest cost ($15,000 0.08)
Expected return on pension fund ($17,000 0.12)
Pension expense
$ 1,500
1,200
(2,040)
$ 660
$(1,100)
$
1,340
240
$(26,169)
23,000
$ (3,169)
1,100
2,000
$
(69)
2.
3.
4.
Projected benefit obligation (PBO)
Fair value of pension fund
Net overfunding of PBO
Unrecognized net pension (gain)/loss
Unrecognized prior service cost
Accrued pension liability
Unrecognized net pension (gain):
Initial loss balance
Unrecognized (gain) from change in discount rate
($26,169 $8,389)
$ (8,389)
23,000
$ 14,611
(16,680)
2,000
$
(69)
$
1,100
(17,780)
$(16,680)
Note that because the large decrease in the PBO is treated as a deferred gain, there is no net change in the accrued
pension liability.
PRACTICE 1715 PENSION WORK SHEET
Prepaid/
Periodic
Unrecognized
Net
Pension
Expense
Cash
Accrued
Pension
Pension
Expense
Cost
Items
Balance January 1
PBO
a. Service cost
1,200
1,200
b. Interest cost
800
800
d. Benefits paid
538
f. Amortization of PSC
400
Service
(Gain)/Loss
Cost
700
2,000
1,550
300
300
e. Deferred gain
Net Pension
9,200
1,550
c. Actual return
Prior
FVPF
10,000
500
Unrecognized
538
400
Summary Journal
Entries
1. Annual Pension
Expense Accrual
1,388
1,388
2. Annual Pension
1,050
Contribution
1,050
Balance December 31
1,050
11,700
162
11,500
1,238
Case 1
Case 2
Case 3
Case 4
Prepaid
Pension
Cost
$ 0
0
500
500
Accrued
Pension
Liability
$500
500
0
0
Existing
Additional
Pension
Liability
$ 0
700
0
0
Necessary New
Additional
Pension
Liability
$1,500
800
no need
2,500
1,600
Case 2
2,000
1,500
2,000
500
2,000
Recall that the account Excess of Additional Pension Liability over Unrecognized Prior Service Cost is reported as
a contra equity account under the Accumulated Other Comprehensive Income heading.
Case 3
2,500
2,000
500
EXERCISES
1721.
Wages Expense..................................................................
Employees Income Taxes Payable ($28,348 0.17). .
FICA Taxes Payable ($28,348 0.0765).......................
Union Dues Payable......................................................
Cash...............................................................................
To record weekly payroll.
28,348*
3,927
4,819
2,169
160
21,200
2,169
1,531
227
33,000*
4,571
5,050
264
1,782
9,900
COMPUTATIONS:
*Monthly payroll:
Frank 5.0% $120,000 =
$6,000 + $1,000
Sally 5.0
$120,000 =
$6,000 + $1,000
Tina 5.0
$120,000 =
$6,000 + $1,000
Barry 4.0
$120,000 =
$4,800 + $1,000
Mark 2.5
$120,000 =
$3,000 + $1,000
Lisa 1.0
$120,000 =
$1,200 + $1,000
Total salaries and commissions expense
=
=
=
=
=
=
2,525
9,900
20,575
2,525
264
1,782#
16,996
$ 7,000
7,000
7,000
5,800
4,000
2,200
$33,000
1722.
(Concluded)
$ 33,000
0.0765
$ 2,525
$ 33,000
0.30
$ 9,900
0.062
0.054
0.008
$ 33,000
0.008
$
264
$ 33,000
0.054
$ 1,782
1723.
Total
Total
Total
Weeks
Weeks
Weeks
Vacation Vacation Vacation Weekly
Employee
Earned
Taken Liability Salary
Andy Hampsten............
14
10
4
$475
Phil Anderson...............
4
2
2
600
Lance Armstrong.........
2
0
2
450
Steve Bauer..................
4
3
1
400
Sean Yates....................
0
0
0
500
Michele Fellows...........
16
14
2
700
Total liability for vacation pay, December 31, 2005.......................
1724.
1.
2.
0.07($350,000 B)
$24,500 0.07B
$24,500
$22,897 (rounded)
Liability
for
Vacation
Pay
$1,900
1,200
900
400
0
1,400
$5,800
1725.
1726.
1727.
Case 1
Accumulated benefit obligation...................................
Additional amounts related to projected
pay increases.............................................................
Projected benefit obligation.........................................
Fair value of pension assets........................................
Excess of PBO over assets..........................................
Unrecognized prior service cost.................................
Unrecognized net pension gain...................................
Accrued pension liability..............................................
$ (750)
(250)
$ (1,000)
700
$ (300)
310
(70)
$
(60)
$4,150,000
3,620,000
$ 530,000
(434,400)
272,000
$ 367,600
1727.
(Concluded)
Case 2
Accumulated benefit obligation...................................
Additional amounts related to projected
pay increases.............................................................
Projected benefit obligation.........................................
Fair value of pension assets........................................
Excess of assets over PBO..........................................
Unrecognized prior service cost.................................
Unrecognized net pension gain...................................
Prepaid pension cost....................................................
Case 3
Accumulated benefit obligation...................................
Additional amounts related to projected
pay increases.............................................................
Projected benefit obligation.........................................
Fair value of pension assets........................................
Excess of PBO over assets..........................................
Unrecognized prior service cost.................................
Unrecognized net pension gain...................................
Accrued pension liability..............................................
1728.
Using the formula discussed in the text:
N(N 1)
where:
N = Number of years of remaining service
D = Decrease in number of employees working each year
56
2
1 =
15
Amortization amount:
2005:
2006:
2007:
2008:
2009:
$ (800)
(100)
$ (900)
1,300
$ 400
190
(120)
$ 470
$ (850)
(150)
$(1,000)
900
$ (100)
50
(200)
$ (250)
1729.
1.
PV = $3,726,000; N = 10; I = 10% PMT = $606,389 annual contribution
2. Denominator of amortization fraction:
N(N 1)
D = Total future years of service
2
30(31)
10 = 4,650
1.
N(N 1)
2
15(16)
D
3
= 360
$980,000
875,000
$105,000
62,000
(70,000)
$ 97,000
1732.
$155,000
132,000
$ 23,000
Because the actual return exceeds the expected return, the $23,000
difference is treated as a deferred gain in the gain or loss component of
pension expense. This amount is added in computing net pension expense
for the period. Because the actual return is included in the return on the
pension fund component, the net effect of combining the actual return and
the
deferred gain or loss is that the expected return is reflected in
pension
expense, and the difference is amortized if necessary over
future years.
1733.
$ 205,000
$425,000
205,000
$ 220,000
$ 22,000*
122
Chapter 17
1734.
$20,000
$(30,000)
$275,000
100,000
150,000
$125,000
10 yrs.
$100,000
$(100,000)
$(75,000)
50,000
175,000
$ (50,000)
5 yrs.
8 yrs.
10,000
25,000
$30,000
$ (5,000)
$(50,000)
12 yrs.
(6,250)
$ 93,750
0
$(50,000)
(Note: Parentheses indicate a deduction in computing net periodic pension expense. In the first line, a deferred gain adds
to current pension expense and a deferred loss reduces current pension expense.)
1735.
1736.
$ 45,000
38,000
52,000
(75,000)
$(20,000)
15,000
Pension Expense............................................................
Prepaid/Accrued Pension Cost.................................
To record pension expense.
55,000
72,000
(5,000)
$ 55,000
55,000
72,000
$ 750,000
1,000,000
(832,000)
25,000
$ 943,000
124
Chapter 17
1737.
Mascare Company
Pension Work Sheet for 2005
Formal Accounts
Net
Pension
Expense
Cash
$1,220
$(100)
Prepaid/
Accrued
Pension
Cost
$ 2,000
(1,220)
100
$ 880
Memorandum Accounts
Periodic
Pension Projected
Expense Benefit
Items Obligation
$ (9,000)
$1,200
(1,200)
900
(900)
(1,500)
500
620
$(10,600)
Fair
Value of
Pension
Fund
$11,000
Unrecognized Net
Pension
(Gain)/Loss
$ 0
1,500
(500)
(620)
100
$12,100
$(620)
1738.
1739.
1.
(in thousands)
$1,380
1,460
$1,625
1,460
$ 165
61
$ 104
(in thousands)
Case 1
Case 2 Case 3
$(12,500) $ (6,290) $ (890)
15,300
4,200
650
$ 2,800
$ (2,090) $ (240)
(200)
800
0
$ 3,400
(850)
2,300
100
125
0
(640)
(85)
$ (100)*
*The reported amount of accrued pension cost in Case 3 includes the $15
conventional liability plus the $85 additional minimum liability.
126
Chapter 17
PROBLEMS
1741.
2005
Oct. 31
13,250
27,000
22,000
62,250*
1,760.00
118.00#
796.50**
COMPUTATIONS:
Schedule of Employers Payroll Taxes
Total
Office Staff Salaries:
FICA..................................................
FUTA: 0.008 $13,250 0.20..........
SUTA: 0.054 $13,250 0.20..........
Officer Salaries:
FICA..................................................
FUTA (all exempt)............................
SUTA (all exempt)............................
Sales Salaries:
FICA..................................................
FUTA: 0.008 $22,000 0.55..........
SUTA: 0.054 $22,000 0.55..........
Total taxes..............................................
FICA
$ 624.00 $ 624.00
21.20
143.10
$ 788.30*
$ 324.00
0
0
$ 324.00
FUTA
SUTA
$ 21.20
$143.10
324.00
$ 812.00
812.00
96.80
653.40
$1,562.20
$2,674.50 $1,760.00
0
0
96.80
653.40
$118.00#
$796.50**
Chapter 17
127
1742.
Jan. 6
6
6
1,758.00*
1,201.63
243.48
134.49
354.70
61.53
5.65#
1,201.63
1,201.63
134.49
14.06**
94.93
COMPUTATIONS:
*Payroll expense:
Richard......... 50
Denise.......... 40
Dale.............. 40
Bryan............ 30
Albert............ 20
$14.00
$11.50
$9.75
$4.50
$3.65
= $ 700.00
=
460.00
=
390.00
=
135.00
=
73.00
$1,758.00
$1,758.00
0.0765
$ 134.49
Insurance payable:
Payroll...................................... $1,758.00
Insurance rate.........................
0.035
$ 61.53
$
$
Number of periods..................
Union dues payable................
5.65
4
22.60
4
5.65
128
Chapter 17
1742.
(Continued)
0.062
0.054
0.008
Payroll...................................... $1,758.00
FUTA tax rate...........................
0.008
$ 14.06
Jan. 13
13
13
15
11,547.59*
7,480.44
1,599.34
2,035.76
3,246.28
348.06
11.30
106.44
718.50
883.39
2,891.58
286.53
5.65
7,480.44
7,480.44
883.39
92.38
623.57**
6,466.34
COMPUTATIONS:
*Salaried payroll:
Ken............
Tatia...........
Jennifer.....
Robyn........
Kyle............
$91,500/24 =
57,000/24 =
48,750/24 =
23,800/24 =
13,900/24 =
Hourly payroll................................
Total payroll.............................
Salary
$ 3,812.50
2,375.00
2,031.25
991.67
579.17
$ 9,789.59
1,758.00
$11,547.59
Income
Tax Rate
28%
28
28
15
15
=
=
=
=
=
Employees Income
Taxes Payable
$1,067.50
665.00
568.75
148.75
86.88
$2,536.88
354.70
$2,891.58
Chapter 17
1742.
129
(Concluded)
$11,547.59
0.0765
$ 883.39
Insurance payable:
Hourly employees.....................................................
Salaried employees (5 $45)...................................
FUTA taxes payable:
Hourly employees ($1,758.00 0.8%).....................
Salaried employees ($9,789.59 0.8%)...................
$ 61.53
225.00
$286.53
$14.06
78.32
$92.38
$ 94.93
528.64
$623.57
1743.
1.
(10)
58
45*
82
6
60
Total accrued........................................
*Policy limits days to 15 per year for 3 years.
Total
Accrued
$1,540
1,140
(580)
3,690
360
$6,150
5,730*
5,020
Employee
A
B
C
D
E
F
2.
5,730
5,020
130
Chapter 17
1743.
(Concluded)
COMPUTATIONS:
AccrualJan. 1,
2005 (Days
Employee
Daily Rate)
A
20 $68 = $1,360
B
15 $74 = 1,110
C
25 $62 = 1,550
D
5 $56 = (280)
E
40 $78 = 3,120
F
$6,860
Balance in
Absences Taken in Liab. Acct.
2005 (Days Avg.
before
Daily Rate)
Adjustment
13 $69 = $ 897
$ 463 Cr.
15 $75 = 1,125
15 Dr.
32 $64 = 2,048
498 Dr.
20 $57 = 1,140
1,420 Dr.
5 $80 =
400
2,720 Cr.
2 $60 =
120
120 Dr.
$5,730*
$1,130 Cr.
Accrual
at Dec.
31, 2005
[See (1)]
$1,540
1,140
(580)
3,690
360
$6,150
Adjustment
$1,077
1,155
498
840
970
480
$5,020
1744.
1.
2005
Dec. 31 Pension Expense......................................................
Prepaid/Accrued Pension Cost...........................
Prepaid/Accrued Pension Cost...................................
Cash.......................................................................
2006
Dec. 31 Pension Expense.........................................................
Prepaid/Accrued Pension Cost...........................
Prepaid/Accrued Pension Cost...................................
Cash.......................................................................
2007
Dec. 31 Pension Expense.........................................................
Prepaid /Accrued Pension Cost..........................
Prepaid/Accrued Pension Cost...................................
Cash.......................................................................
2008
Dec. 31 Pension Expense.........................................................
Prepaid/Accrued Pension Cost...........................
Prepaid/Accrued Pension Cost...................................
Cash.......................................................................
560,700
560,700
625,000
625,000
725,000
725,000
670,000
670,000
685,000
685,000
620,000
620,000
726,500
726,500
625,000
625,000
(Note: No entries are made on Allieds books for the benefits paid to retirees.
The actual return on the pension fund is included in the computation of the
pension cost accrual.)
Chapter 17
1744.
131
(Concluded)
Dr. (Cr.)
(25,000)
64,300
(55,000)
(65,000)
(101,500)
$ (182,200)
$
$ 2,600,000
2,540,000
1,725,000
(1,275,000)
$ 5,590,000
1745.
1. PV = $6,290,000; N = 15; I = 10% PMT = $826,970 annual contribution
2. Computation of total future years of service:
N = 225/15 = 15 (Number of remaining years of service)
N(N 1)
D = Total future years of service
2
15(16)
15 = 1,800
2
1,800/225 = 8 years
Annual amortization of prior service cost:
$6,290,000/8 = $786,250
132
Chapter 17
1746.
1. Actual return on the pension fund............................................................
Expected return on the pension fund ($2,600,000 0.11).......................
Difference (deferred loss)..........................................................................
$275,000
286,000
$ (11,000)
$500,000
360,000
$ 140,000
10 years
$ 14,000
$626,000
$500,000
(11,000)
(14,000)
$ 475,000
(25,000)
$ 601,000
1747.
1. Computation of net periodic pension expense (in thousands):
Component
Service cost .....................................................
Interest cost .....................................................
Actual return on the pension fund..................
Gain or loss:
Deferral of difference between actual and
expected return on the pension fund.........
Amortization of unrecognized (gain) or
loss above corridor amount........................
Amortization of unrecognized prior service
cost....................................................................
Net periodic pension expense.........................
2.
Pension Expense..............................................
Prepaid/Accrued Pension Cost...................
Prepaid/Accrued Pension Cost.......................
Cash..............................................................
2005
$330
150
(35)
2006
$ 415
170
(50)
$5
$5
(20) (15)
(10) (5)
70
$500
2007
$580
220
(40)
$(10)
90
$ 620
18
90
$858
2005
500
500
2006
2007
620
858
620
858
520
580
520
750
580
750
Chapter 17
1747.
133
(Concluded)
75
(1,978)
1,850
(53)
1748.
1. Computation of net periodic pension expense, 20052007:
2005
Pension expense exclusive of
prior service cost amortization...............................
Amortization of prior service cost..............................
Net periodic pension expense....................................
2006
2007
2,340
2,970
2,410
2,510
2,860
2,410
2,340
2,970
2,410
2,510
2,860
2,410
2005
$23,800
2006
$29,300
24,200
(400)
355*
$
0
27,900
$ 1,400
255
$ 1,145
31,500
$ 5,500
705
$ 4,795
2007
134
Chapter 17
1748.
(Concluded)
$705 Cr.
$4,795 Cr.
$4,795 Dr.
1749.
1. Computation of additional liability:
Accumulated benefit obligation...................................
Less: Fair value of the pension fund...........................
Minimum liability...........................................................
Prepaid/(accrued) pension cost...................................
Additional pension liability...........................................
2005
$159,100
149,000
$ 10,100
4,200
$ 14,300
2. 2005
Dec. 31 Deferred Pension Cost..............................................
Excess of Additional Pension Liability over
Unrecognized Prior Service Cost............................
Additional Pension Liability..................................
To recognize additional pension liability.
2006
Dec. 31 Additional Pension Liability.......................................
Deferred Pension Cost..........................................
Excess of Additional Pension Liability over
Unrecognized Prior Service Cost........................
To adjust additional pension liability.
2006
$172,900
160,000
$ 12,900
(1,950)
$ 10,950
8,200
6,100
14,300
3,350*
COMPUTATIONS:
*$14,300 $10,950 = $3,350 decrease in additional liability balance
1,900
1,450
Chapter 17
135
1750.
Annual amortization of prior service cost = $250,000.
Amount of prior service cost at December 31, 20052007:
2005: $1,000,000 $250,000 = $750,000
2006: $750,000 $250,000 = $500,000
2007: $500,000 $250,000 = $250,000
Journal entries to record adjustment to Additional Pension Liability for the years
20042007:
2004 Deferred Pension Cost.................................................... 100,000
Additional Pension Liability........................................
100,000
To adjust Additional Pension Liability to $800,000.
(Maximum charge to Deferred Pension Cost is
$1,000,000.)
2005 Excess of Additional Pension Liability over
Unrecognized Prior Service Cost................................. 350,000
Deferred Pension Cost................................................
Additional Pension Liability........................................
To adjust Additional Pension Liability to $1,100,000.
(Maximum charge to Deferred Pension Cost is
$750,000.)
2006 Additional Pension Liability............................................ 700,000
Deferred Pension Cost................................................
Excess of Additional Pension Liability over..............
Unrecognized Prior Service Cost ............................
To adjust Additional Pension Liability and
Deferred Pension Cost to $400,000. Contra equity
account is eliminated.
2007 Excess of Additional Pension Liability over
Unrecognized Prior Service Cost................................. 350,000
Deferred Pension Cost................................................
Additional Pension Liability........................................
To adjust Additional Pension Liability to $600,000.
(Maximum charge to Deferred Pension Cost is
$250,000.)
50,000
300,000
350,000
350,000
150,000
200,000
1751.
1. Computation of additional pension liability at December 31, 2005:
Accumulated benefit obligation, December 31, 2005..........................
Less: Fair value of the pension fund, December 31, 2005.................
Computed minimum pension liability...................................................
Plus: Prepaid pension cost...................................................................
Additional pension liability, December 31, 2005..................................
$2,804
2,754
$ 50
15
$ 65
136
1751.
Chapter 17
(Concluded)
$2,907
2,532
$ 375
30
$ 345
(65)
$ 280
65
280
$ 215
65
$ 150
1752.
The 2005 pension expense includes the following components (in thousands):
Service cost...........................................................................................
$
875
Interest cost...........................................................................................
1,100
Actual return on the pension fund.......................................................
(1,250)
Deferred loss from return on the pension fund.................................
(60)
Amortization of prior service cost.......................................................
75
Net pension expense............................................................................
$
740
The funded status of the pension plan at December 31, 2005, was as follows:
Accumulated benefit obligation, December 31, 2005........................
$ (9,900)
Effect of projected future compensation increases..........................
(1,850)
Projected benefit obligation, December 31, 2005..............................
$(11,750)
Fair value of the pension fund, December 31, 2005...........................
10,800
Excess of projected benefit obligation over fair value of pension
plan assets (underfunding).................................................................
$ (950)
Unrecognized net pension loss...........................................................
160
Accrued pension cost...........................................................................
$ (790)
Chapter 17
137
1753.
Haan Company
Pension Work Sheet for 2005
(in thousands)
Formal Accounts
Memorandum Accounts
Prepaid/ Periodic
Fair
Unrecognized
Net
Accrued Pension Projected Value of
Prior
Unrecognized
Pension
Pension Expense Benefit
Pension
Service
Net Pension
Expense Cash
Cost
Items Obligation
Fund
Cost
(Gain)/Loss
Balance, January 1, 2005...............
$(350)
$(3,500)
$3,000
$150
$ 0
(a) Service cost..............................
$ 400
(400)
(b) Interest cost..............................
350
(350)
(c) Actual return on pension fund
(130)
130
(d) Benefits paid............................
170
(170)
(e) PSC amortization.....................
40
(40)
(f) Deferred loss............................
(80)
80
Summary Journal Entries:
(1) Annual pension expense
accrual.....................................
(2) Annual pension contribution..
Balance, December 31, 2005.........
$580
$(230)
(580)
230
$(700)
230
$(4,080)
$3,190
$110
$80
138
Chapter 17
1754.
Viewmont Cable Company
Pension Work Sheet for 2005
(in thousands)
Formal Accounts
Memorandum Accounts
Prepaid/ Periodic
Fair
Net
Accrued Pension Projected Value of Unrecognized Unrecognized
Pension
Pension Expense Benefit
Pension Prior Service Net Pension
Expense Cash
Cost
Items Obligation
Fund
Cost
(Gain)/Loss
Balance, January 1, 2005...............
(a) Service cost..............................
(b) Interest cost..............................
(c) Actual return on pension fund
(d) Retirement benefits paid.........
(e) Deferral of gain on pension
fund.........................................
(f) Amortization of prior service
cost..........................................
(g) Amortization of unrecognized
pension (gain) loss................
Summary Journal Entries:
(1) Pension expense accrual........
(2) Contributions to fund..............
Balance, December 31, 2005.........
$(598)
$ 90
456
$(3,800)
(90)
(456)
(220)
185
$2,530
$732
$(60)
220
(185)
10
(10)
61
(61)
0
$397
$(300)
(397)
300
$(695)
300
$(4,161)
$2,865
$671
$(70)
Chapter 17
1754.
139
(Concluded)
COMPUTATIONS:
(a) 2005 service cost:
Projected benefit obligation, Dec. 31, 2005...................................
Less: Projected benefit obligation, Jan. 1, 2005...........................
Increase in projected benefit obligation........................................
Less: Interest cost (0.12 $3,800).................................................
Plus: Benefits paid..........................................................................
Service cost ....................................................................................
$4,161
3,800
$ 361
(456)(b)
185
$ 90
$2,865
2,530
$ 335
185
(300)
$ 220
$ 732
12
$ 61
140
Chapter 17
1755.
The following work sheets are not required but may be helpful.
Leffingwell Company
Pension Work Sheet for 2005
Formal Accounts
Prepaid/
Net
Accrued
Pension
Pension
Expense Cash
Cost
Balance, January 1, 2005..............
Periodic
Pension
Expense
Items
3,500
Service cost..............................
Interest cost..............................
Actual return on pension fund
Retirement benefits paid.........
Amortization of prior service
cost..........................................
Deferral of loss on pension
fund..........................................
Amortization of unrecognized
pension (gain) loss.................
Change in PBO assumptions..
Projected
Benefit
Obligation
Memorandum Accounts
Fair
Value of Unrecognized Unrecognized
Pension Prior Service Net Pension
Fund
Cost
(Gain)/Loss
$(1,615,000) $1,513,500
$ 87,000
177,650
(26,350)
$105,000
(87,000)
(177,650)
132,000
26,350
(132,000)
21,000
(21,000)
(125,000)
125,000
0
80,000
(80,000)
(134,300)
$(120,000)
120,000
$ (10,800)
120,000
$(1,827,650) $1,527,850
$ 84,000
$205,000
Chapter 17
1755.
141
(Continued)
Leffingwell Company
Pension Work Sheet for 2006
Formal Accounts
Prepaid/
Net
Accrued
Pension
Pension
Expense Cash
Cost
Periodic
Pension
Expense
Items
$ (10,800)
Service cost..............................
Interest cost..............................
Actual return on pension fund
Retirement benefits paid.........
Amortization of prior service
cost..........................................
Deferral of gain on pension
fund..........................................
Amortization of unrecognized
pension (gain) loss.................
Projected
Benefit
Obligation
Memorandum Accounts
Fair
Value of Unrecognized Unrecognized
Pension Prior Service Net Pension
Fund
Cost
(Gain)/Loss
$(1,827,650) $1,527,850
$ 115,000
201,042
(180,000)
$ 84,000
$205,000
(115,000)
(201,042)
140,000
180,000
(140,000)
18,667
(18,667)
27,215
(27,215)
4,447
(4,447)
(186,371)
$(125,000)
125,000
$ (72,171)*
125,000
$(2,003,692) $1,692,850
$ 65,333
$173,338
142
Chapter 17
1755. (Continued)
1.
Leffingwell Company
Pension Expense Components
For the Year Ended December 31, 2005
Service cost...................................................................................................
Interest cost ($1,615,000 0.11)...................................................................
Actual return on the pension fund...............................................................
Amortization of prior service cost...............................................................
Gain or loss:
Deferral of deficiency of actual return compared to expected return
on the pension fund ($1,513,500 0.10) $26,350 (deferred loss).....
Net pension expense....................................................................................
$ 87,000
177,650
(26,350)
21,000
(125,000)
$ 134,300
Leffingwell Company
Reconciliation of Reported Amount of Prepaid/Accrued Pension Cost
December 31, 2005
Accumulated benefit obligation...................................................................
Effect of projected future compensation....................................................
Projected benefit obligation, December 31, 2005.......................................
Fair value of the pension fund, December 31, 2005...................................
Excess of obligation over assets (underfunding)......................................
Unrecognized net pension loss, December 31, 2005.................................
Unrecognized prior service costs, December 31, 2005.............................
Prepaid/accrued pension cost, December 31, 2005...................................
$ (1,530,000)
(297,650)
$ (1,827,650)
1,527,850
$ (299,800)
205,000
84,000
$
(10,800)
Leffingwell Company
Pension Expense Components
For the Year Ended December 31, 2006
Service cost...................................................................................................
Interest cost ($1,827,650 0.11)...................................................................
Actual return on the pension fund...............................................................
Amortization of prior service cost...............................................................
Gain or loss:
Deferral of excess of actual return over expected return on the
pension fund ($1,527,850 0.10) $180,000 (deferred gain). $27,215
Amortization of prior years deferred net pension loss*.......... 4,447
Net pension expense......................................................................
*[$205,000 ($1,827,650 0.10)]/5 years = $4,447
$ 115,000
201,042
(180,000)
18,667
31,662
$ 186,371
Chapter 17
1755.
143
(Concluded)
Leffingwell Company
Reconciliation of Reported Amount of Prepaid/Accrued Pension Cost
December 31, 2006
2005
Dec. 31 Pension Expense......................................................
Prepaid/Accrued Pension Cost...........................
Prepaid/Accrued Pension Cost...............................
Cash ...................................................................
2006
Dec. 31 Pension Expense......................................................
Prepaid/Accrued Pension Cost...........................
Prepaid/Accrued Pension Cost...............................
Cash ...................................................................
3.
$ (1,850,000)
(153,692)
$ (2,003,692)
1,692,850
$ (310,842)
173,338
65,333
$
(72,171)
134,300
134,300
120,000
120,000
186,371
186,371
125,000
125,000
2005
Dec. 31 No entry needed.
Minimum liability adjustment not needed:
($1,530,000 $1,527,850) is less than $10,800
2006
Dec. 31 Deferred Pension Cost.............................................
Excess of Additional Pension Liability
over Unrecognized Prior
Service Cost ($84,979 $65,333)...........................
Additional Pension Liability.................................
65,333
19,646
84,979
144
Chapter 17
DISCUSSION CASES
Discussion Case 1756
This case allows students to consider how difficult it is to solve a complex accounting issue that has
broad, pervasive effects on companies. The pressure from various groups on any issue can be intense. It
certainly was so in this case. Even after the Accounting Principles Board issued Opinion No. 8, there was
a general feeling among accountants that this was still only one step in the process of accounting for
pensions. As pension fund assets and liabilities grew in magnitude, the materiality of pensions became
an important issue. The conceptual framework project of the FASB caused Board members to focus on
issues that raised questions concerning the soundness of the accounting standards for pensions. The
Board could not continue to ignore the area, and the pension project was added to its agenda relatively
early in its existence.
Once the project was under way, a resolution was imperative. Some observers believed that the future of
the FASB hinged on how well it resolved this intricate area. To leave pension standards as they were was
not a viable alternative. The discrepancies among companies in their reporting of pension expense and
the almost universal ignoring of pension fund assets and liabilities on the employers financial statements
required new standards. While the final standard can be criticized for many of its features, the Board
should be commended for finally bringing the project to a close. While there were dissents to the final
standard, the process was so long and painful that it is doubtful that the pension standard will be
modified in a major way for many years to come.
Discussion Case 1757
The pension standards provide a fertile field to relate terms used by the FASB in its conceptual
framework project with an accounting issue. The terms selected for discussion in this case are not all
inclusive. Others could have been included. The following discussion indicates some of the relationships
that students could identify in answering the questions posed in this case.
(a)
Representational faithfulness
This concept was included in Concepts Statement No. 2 as a subset of reliability. Much of the
criticism of the earlier pension standards was based on their failure to represent faithfully the true
underlying economic conditions surrounding pension liabilities. While it was obvious that employers
often had significant future obligations for pensions, these obligations were not being reported in the
financial statements. Periodic measures of pension cost were not comparable across companies
because of the wide latitude permitted in the accounting standards. By focusing on this term, Board
members tried to develop a standard that represented more completely the underlying economic
effects of pension plans. Postretirement benefits were recognized only on a cash basis prior to
FASB Statement No. 106. To be representationally faithful, the accrual concept is required.
Chapter 17
(c)
145
Verifiability
Verifiability relates to the ability of different measurers to arrive at the same valuation. The previous
pension standards allowed great variability in determining the amount of pension expense that was
reported on the income statement. An objective of the FASB was to narrow this disparity in an
attempt to increase the verifiability of the reported pension amounts. Pensions are an especially
difficult area of accounting because almost all pertinent variables deal with the future. There is great
uncertainty as to the actual amount of pension benefits that will ultimately be paid. Although FASB
Statement No. 87 narrows the range of some of the variables, there is still considerable variation in
the final result. Thus, verifiability is only partially achieved. FASB Statement No. 106 introduces
other variables that are very difficult to verify.
(d) Usefulness
One of the motivating reasons for adding the pension project to the FASB agenda was to increase
the usefulness of the pension information reported in employers financial statements. Because
most of the relevant information was not included in the financial statements and the note
disclosure often was incomplete, the users did not have the necessary information to evaluate the
status of the employers obligation for pensions. The new standards provide for more extensive note
disclosure and in many cases result in additional information being reported on the balance sheet.
(e)
Present value
The fact that monetary values change over time is recognized in many accounting applications.
Pension accounting is especially dependent on the use of the present values because of the
extended
period between the time benefits are earned and when they are actually paid. The present value
computation is very sensitive to the discount rate used. Previous pension standards also involved
present value techniques; however, FASB Statements No. 87 and No. 106 separate the interest
component of pension expense and require a separate disclosure of that expense.
(f)
Conservatism
Although conservatism was not included as a qualitative characteristic in Concepts Statement No.
2, it was discussed as a pervasive constraint in accounting practice. Conservatism is reflected in
FASB Statement No. 87 through the requirement for recording a minimum liability when pension
plans are underfunded but not recognizing an asset when pension plans are overfunded. FASB
Statement No. 88, however, would not be described as conservative because it provides for an
immediate recognition of gains arising from pension plan settlements and curtailments as opposed
to a deferral of these items. Conservatism, as presently defined in the literature, refers to
accounting for uncertainty and a careful evaluation of how uncertainty should be reflected in the
financial statements.
146
Chapter 17
People feel they have more control of their money in a defined contribution plan.
The stock market has been (or had been) solid during the working careers of many people.
A defined contribution plan is mobile. Employees these days are much more likely to change
jobs.
2.
One big reason is the switch in investment risk from the company to the employees.
Easier to manage with todays mobile work force.
Enron impact: Another consequence of the Enron scandal may be a revision in companies defined
contribution pension plans. Many Enron employees lost everything because they had their entire
retirement investment fund invested in Enron shares. Enron management encouraged this. Senator
Barbara Boxer of California has resurrected a proposal that would require employees to hold no
more than 10% of their retirement fund in the form of shares of their own company. To many, this
seems like a prudent measure; one of the fundamental principles of long-term investing is
diversification.
3. Because most defined benefit plans are based on the highest salary, an employee really sees a
disproportionate share of benefit growth in the final years of work when the highest salary usually
occurs. If the transition amount is computed based on current salaries, older employees lose out on
the big benefits that would have accrued to them in their final, high-salary years, and they dont have
many years in which to accrue new benefits under the new defined contribution scheme. It is said
that IBMs plan started to unravel as employees went to the companys Web site and used the
pension benefit calculator intended to explain the consequences of the switch. Older employees
were outraged.
Chapter 17
147
148
Chapter 17
Chapter 17
149
General Motors
Ford
IBM
General Electric
Expected Return
on U.S. Pension Funds
10.0%
9.5
10.0
9.5
Expected Return
on Non-U.S. Pension Funds
8.9%
8.7
5.010.0
n/a
150
Chapter 17
The simple, rough estimate is used. With an age of 40 and earnings in the current year of $50,000,
the monthly benefit for a person who retires at age 67 is $1,553. A more accurate estimate can be
generated by inputting your specific wage history.
2.
The extra amount that a person must save each year between now and retirement is $7,245 under
the following assumptions:
Currently age 40
Current income is $50,000
Retire at age 65
Monthly Social Security benefit of $1,553 [as estimated in part (1)]
Chapter 17
151
The announcement of a pension plan settlement and excess asset reversion would have no effect
on a firms stock price if the move had already been anticipated by investors. In such a case, the
public announcement would be official confirmation of information already impounded in the firms
stock price. Before 1984, when it was uncertain whether the courts would allow firms to claim
excess pension assets, ownership of those assets was uncertain, and their value was not fully
reflected in firms market values. As the number of successful settlements and asset reversions
increased, market participants revised their expectations and included the value of excess pension
assets in their assessments of firms market values.
2.
If a firm sees that its pension plan is overfunded, it can simply reduce funding levels in subsequent
years. The cash savings from this reduced funding are analogous to the excess assets acquired
when an overfunded plan is settled. Reduction in funding level has the advantage of being less
costly to implement, both in monetary terms (the transaction costs of purchasing annuity contracts
can be avoided) and in terms of lost employee goodwill. However, if the intent is to ease immediate
cash flow problems, a gradual funding reduction may not provide cash fast enough.
Accounting for Postretirement Benefits Other than Pensions: Cost vs. Benefit (pp. 10781079)
1.
Reducing retiree health benefits would reduce the earning impact and the size of the liability to be
reported under FASB Statement No. 106. Without the changes, firms might fear that the adverse
financial statement effects would lower their stock price, reduce their ability to maintain
management bonuses, or make it more difficult to obtain loans. In one sense, the existence of such
consequences is counterintuitive since FASB Statement No. 106 mandates a change in accounting
only for retiree benefit plansplans that have been in existence for years. However, the fact that
firms seem to be willing to change their retiree plans in response to a change in accounting again
supports the belief that the way something is accounted for has real economic consequences.
2.
In a perfect world, one would expect no impact on stock prices or on the ability to get loans. This is
so because the impact of postretirement benefit plans on the financial condition of a company
would have already been taken into account by sophisticated investors and bankers who are known
to use all sorts of data not found in financial statements when doing their financial analyses.
However, the world is not perfect, and it is possible that the financial effects of postretirement
benefit plans either have not been fully factored into investment decisions or the estimates of those
effects have been systematically in error. There is some evidence that firms are finding that they
have been underestimating the cost of their retiree benefit plans. If this is true, FASB Statement No.
106 may impact stock prices and creditworthiness of firms with large retiree benefit plans.
152
Chapter 17
In Note 7 of the financial statements, Disney reports that the ending PBO for 2001 is $2,131 million.
2.
An Unrecognized net gain indicates that Disneys actual return has been greater than what it has
expected over time. Notice also that the amount of the unrecognized net gain decreased from 2000
to 2001, indicating that the actual return in 2001 was less than expected.
3.
Before the adoption of SFAS No. 106, almost all companies, including Disney, accounted for their
postretirement medical benefits programs on a pay-as-you-go basis. With the adoption of SFAS No.
106, companies were required to report the entire estimated cost of these benefits in the financial
statements. For almost all companies (including Disney), this resulted in a substantial increase in
the reported annual expense. Many companies responded to this financial accounting change by
changing their benefit programs. This is a classic example of the economic consequences of
financial accounting rules.
4.
Disneys projected obligation associated with its postretirement benefit plans, i.e., the APBO,
exceeds the fair value of plan assets on September 30, 2001, by $356 million. It is not uncommon
for firms to have underfunded other postretirement benefit plans.
As of December 31, 2001, the fair value of Northrop Grummans pension fund exceeded its
projected benefit obligation by $1,485 million. Thus, the plan is overfunded.
2.
In 2001, Northrop Grumman suffered an actual loss of $537 million on its pension fund. This is
certainly less than the positive return that is expected on a long-term basis. This is confirmed by the
fact that the unrecognized net gain of $1,802 million at the end of 2000 became an unrecognized
net loss of $765 million by the end of 2001. Not all of this change was caused by a shortfall in the
return on the pension fund, but it is probable that a large portion of it was.
3.
The PBO associated with companies acquired in 2001 was $2,391 million. The fair value of the
pension funds associated with these acquired companies was $3,311 million. Thus, the acquired
plans were overfunded.
4.
81
If the simplifying assumption is not made, then the changes in balances from 2000 suggest that the
following journal entry was made:
Deferred Pension Cost (intangible asset)........................................... 6
Accumulated Other Comprehensive Income (equity)........................ 41
Additional Pension Liability...................................................
5.
47
As of December 31, 2001, the fair value of Northrop Grummans medical and life benefits fund was
less than the projected obligation by $1,325 million. Thus, these plans are underfunded.
Chapter 17
153
You might first think that decreasing the discount rate would decrease pension expense as reported
on the income statement. Why? Because in computing the interest cost component of pension
expense, the PBO is multiplied by this lower discount rate. However, you must remember that
decreasing the discount rate will result in increasing the PBO (because the PBO amount is a
present value). So a larger PBO will be multiplied by a smaller discount rate, perhaps resulting in an
increase in interest costs. Notice that interest cost in 2001 is greater than in 2000. The larger PBO
will also affect the balance sheet by increasing the liability (or decreasing the asset).
2.
Overall, Eli Lillys pension plans are underfunded because the fair value of this pension fund is less
than the PBO by $416.6 million as of December 31, 2001.
3.
During 2000 and 2001, the company increased its PBO by $144.3 and $88.5 million, respectively,
related to actuarial losses. That is, the actuaries revised their estimates of employee life span, time
remaining to retirement, employee retention, and so forth, and determined that the PBO should be
increased by $232.8 million related to these items.
4.
In the late 1990s, the stock market provided annual returns exceeding 20%. However, in 2000 and
2001, market returns were actually negative for most portfolios. For example, the return on Eli Lillys
pension fund in 2001 was negative. However, the expected return on the pension fund is a longterm expectation. Since 1925, the return on a broad-based mutual fund has averaged about 12%
per year. Eli Lilly probably has many of its pension plan assets invested in the stock market. By
reviewing its assumptions regarding long-term rates of return, it appears that Eli Lilly is betting that
the stock market will eventually turn around and provide it with a return that exceeds the return
offered on a standard savings account at a bank.
GMs PBO for all plans (both U.S. and non-U.S.) totals $86,333 million ($76,383 + $9,950). That is
quite an obligation! But GM has accumulated (in the form of contributions and revenues on these
contributions) $73,662 million ($67,322 + $6,340) in an effort to finance this obligation.
2.
GMs obligation relating to postretirement benefits other than pensions totals $52,489 million.
Adding this to its PBO from (1) results in future obligations relating to retirement benefits of
$138,822 million.
3.
GM assumed that health care costs would increase by 6% during 2002 and then decrease to an
annual rate of 5% through 2008. If GM had assumed a 7% rate (instead of the 6% rate), the effect
on the APBO would have been to increase it by $5.4 billion and to increase service and interest
costs by $472 million for the year.
The correct answer is a. Kane will report pension expense equal to service cost of $19,000 +
interest of $38,000 the expected return on plan assets of $22,000 + amortization of unrecognized
prior service cost of $52,000 for a net amount of $87,000. With employer contributions of $40,000,
the unfunded amount is $47,000. The prepaid pension cost of $2,000 at January 1, 2006, will be
eliminated resulting in accrued pension cost of $45,000 at December 31, 2006.
2.
The correct answer is a. Although an employer's obligation for postretirement health benefits is
recognized over the period of the employee's active employment, the obligation must be fully
accrued by the date that the employee is fully eligible for the benefits.
3.
The correct answer is a. The minimum pension liability is the unfounded ABO; or $140,000. The
company already has an accrual for pension cost of $80,000, indicating that an additional liability of
$60,000 must be recorded. The debit would ordinarily be to Deferred Pension Cost, an intangible
asset. If the additional liability, however, exceeds the unrecognized prior service cost, the excess is
reported in a contra-equity account. In this case, the excess is $60,000 $45,000, or $15,000.
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GM discloses information about its U.S. and non-U.S. defined benefit pension plans. Both sets of
plans were underfunded as of December 31, 2001.
2.
As of December 31, 2001, GM had recognized a $5.6 billion intangible asset and a $14.3 billion
reduction in equity associated with an additional minimum pension liability.
3.
For the three years presented in Exhibit 17-12, GM assumed a discount rate ranging from 7.3% to
7.8% (for U.S. plans) and an expected long-term return on assets of 10.0% (for U.S. plans). Future
compensation is expected to increase by 5.0% per year.
4.
GM has a very large obligation for other postretirement benefits. This obligation is associated with a
relatively small fund. Contributions to pension funds are primarily dictated by federal law in the
United States. These contributions are also given favorable tax treatment. The laws are different for
non-pension postretirement benefit plans. As a result, these plans typically are substantially
underfunded.
Chapter 17
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But before someone starts to think that he/she can blatantly manipulate these estimates, several things
must be considered. First, auditors will review the estimates to ensure that they are reasonable. Second,
the actuaries themselves provide a control in that they are not paid to provide management with a
favorable estimate but instead with a reasonable estimate. Finally, modifying assumptions may alter the
liability on the books, but does not alter the liability in fact. As employees retire, they will expect their
promised benefits regardless of how the company chose to account for those benefits in the past.
Suggested answers to the five questions are as follows:
1.
The reduction in the discount rate would increase the present value of the postretirement
obligations. The reductions in the estimates of future salary increases and health care cost
increases would both decrease the present value of the postretirement obligations. The increase in
the expected return on the pension fund would not impact the present value of the obligations.
2.
The reductions in the estimates of future salary increases and health care cost increases and the
increase in the expected return on the pension fund would all decrease the net expense reported on
the income statement. The reduction in the discount rate might increase or decrease the reported
expense. As mentioned in (1), the reduction in the discount rate would increase the present value of
the obligations. However, in computing the interest cost component of expense, a smaller interest
rate would be applied to this increased obligation. The net effect on the reported expense depends
on the exact numbers.
3.
Any changes in estimates like these must be confirmed as being reasonable by both the companys
auditor and the companys actuary. In addition, ethical considerations should constrain a company
from manipulating these estimates in order to deceive financial statement users.
4.
Changing the estimates does not change the underlying economic obligation.
5.
A key consideration is whether the changes are being made to better inform or to deceive financial
statement users. As discussed in Chapter 6, deceptive reporting practices are not only unethical, but
they can also prove costly to companies that lose their reporting credibility and subsequently find it
more difficult to attract investors and creditors.
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The maximum pension benefit guaranteed by PBGC is set by law and adjusted yearly. For plans
ended in 2002, workers who retire at age 65 or older can receive up to $3,579.55 a month
($42,954.60 a year). The guarantee is lower for those who retire early or when there is a benefit for
a survivor.
2.
As of October 2002, all PBGC-insured single-employer defined benefit pension plans pay a flat-rate
charge of $19 per participant per plan year. Underfunded single-employer plans pay an additional
variable-rate premium of $9 for every $1,000 (or fraction thereof) of unfunded vested benefits.
The premium rate for PBGC-insured multiemployer plans is $2.60 per participant per plan year.
3.
Twenty-four (24) semester hours in accounting or auditing courses, which may include up to 6
hours of business law; OR
A certificate as Certified Public Accountant or a Certified Internal Auditor; OR
Completion of the requirements for a degree that included substantial course work (e.g., at least
15, but less than the 24 semester hours required) in accounting or auditing, provided that:
The applicant has successfully worked at the full performance level in accounting, auditing,
or a related field; AND
A panel of at least two higher level professional accountants or auditors has determined that
the applicant has demonstrated a good knowledge of accounting and of related and
underlying fields that equals in breadth, depth, currency, and level of advancement that
which is normally associated with successful completion of the four-year course of study;
AND
Except for the lack of the required 24 semester hours in accounting or auditing, the
applicant's education, training, and experience fully meet the specified requirements.