E. FINANCIAL STATEMENTS OF EMPLOYEE BENEFIT PLANS

Question 1

_{E. FINANCIAL STATEMENTS OF EMPLOYEE BENEFIT PLANS}

Defined Benefit Pension Plan:

Answer 1

Defined Benefit Pension Plan

• With a defined benefit pension plan, there are different inputs and the annual retirement benefit is defined.

The big thing with these are:

• annual pension expense and

• ending liability, or the ‘projected benefit obligation’.

The required financial statements are:

• A statement of net assets available for benefits as of the end of the plan year (ERISA requires this to be in comparative format)
• A statement of changes in net assets available for benefits for the year then ended
• Information regarding the actuarial present value of accumulated plan benefits
• Information regarding the effects, if significant, of certain factors affecting the year-to-year change in accumulated plan benefits

Question 2

_{E. FINANCIAL STATEMENTS OF EMPLOYEE BENEFIT PLANS}

Defined Contribution Pension Plan:

Answer 2

Defined Contribution Pension Plan

In a defined contribution plan, the annual employer contribution is defined, and the performance is up to the employee.

The financial statements required are:

• A statement of net assets available for benefits as of the end of the plan year.
• A statement of changes in net assets available for benefits

These are much simpler to account for than defined benefit plans. The employer simply contributes a set annual amount into an investment account for the employee held by a third-party trustee.