Financial Statements of Employee Benefit Plans Flashcards
T/F: a pension plan and the sponsoring company are two separate legal entities
True; pension plan accounting for the sponsoring company focuses on calculating net periodic pension cost using actuarial outputs and reporting the funded status of the plan on the sponsor’s balance sheet; in addition to the accounting and reporting done by the sponsor company, U.S. GAAP requires that financial statements be presented by the pension plan itself
What financial statements does GAAP require a defined benefit plan to include?
statement of net assets available for benefits - a statement that includes information regarding the net assets available for benefits at the end of the plan year
statement of changes in net assets available for benefits - a statement that includes information regarding the changes during the year in the net assets available for benefits
statement of accumulated plan benefits - information regarding the actuarial present value of accumulated plan benefits as of either the beginning or end of the plan year
statement of changes in accumulated plan benefits - information regarding the significant effects of certain factors affecting the year-to-year change in the actuarial present value of accumulated plan benefits
a statement of cash flows is not required, but may be presented if it provides relevant information about the ability of the plan to meet future obligations
What are accumulated plan benefits?
the future benefit payments that are attributable to the employee’s services rendered to the benefit information date, including benefits expected to be paid to any of the following:
retired or terminated employees or their beneficiaries
beneficiaries of deceased employees
present employees or their beneficiaries
What is the actuarial present value of accumulated plan benefits?
the amount that results from applying actuarial assumptions to the accumulated plan benefits, with the actuarial assumptions being used to adjust the accumulated plan benefits to reflect the TVM and the probability of payment between the benefit information date and the expected payment date
What are the net assets available for benefits?
the difference between a plan’s assets and liabilities, excluding he participant’s accumulated plan benefits
What financial statements does GAAP require for a defined contribution plan to include?
statement of net assets available for benefits - a statement that includes information regarding net assets available for benefits at the end of the plan year, with separate amounts for investments carried at fair value and investments carried at contract value
statement of changes in net assets available for benefits - a statement that includes information regarding the changes during the year in the net assets available for benefits
a statement of cash flows is not required, but may be presented if it provides relevant information about the ability of the plan to meet future obligations
What disclosures does GAAP require for a defined contribution pension plan?
pension expense - the amount required to be contributed to the pension based on the formula established by the pension plan
plan description - including the employee groups covered, basis for determining contributions, and the nature and effect of significant matters affecting comparability from period to period
