MGMT 351 1st Edition Lecture 12Current Lecture- Talked about Exam 1Accounting For Pensions 1. Introduction a. PV= [(periodic B)(PVOA, n, r)* (PVS,t,r)i. Annual Benefit is like an annuity or annuity due ii. PV/PBO= balance in your savings account, should be PV of future payments computed at time of retirement iii. PBO= pension benefit obligation 1. To fund- company makes annual (cash) contributions, can be made at end or beginning/year – how your plan asset balance is determined 2. Private Pension Plans- three parties a. Company: pension plan b. Fund management company (trustee) c. Employee retirees 3. Types of Pension Plans a. Who offers/monitors pension plans i. Government- FICA (social security) ii. Private plans  Employer Plans (Defined benefit) or (Defined Contribution) a. Or individuals (traditional & Roth IRAs) b. Whether employees contribute to the pension fund?i. Contributory plans: employees as well as employer contribute ii. Noncontributory plans: only the employer contributes c. Whether the pension plan has a benefit or contribution provision i. Defined Benefit Plan** ii. Defined Contribution Plan 4. Defined Contribution Plan a. The plan clearly defines what amount of contribution the employer should make each year, but not what benefits the employees will receive after retirement i. TotalBenefit (TB)= annual contribution * service years ii. Everything is from company perspective These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.5. Defined Benefit Plan* we are focusing on this one a. Plan defines the amount of future benefits employees will receive after retirement b. TB= annual credit * highest/terminal salary* #years c. Annual credit= % of salary i. Any shortfall in the pension funds in the future, the company is liable for the shortfall – good protection for the employees, but costly to the employerii. Pension asset (accumulated pension fund balance) and liabilities on balance sheet, company reports on behalf of you 6. Prior Service Cost: PV of retirement benefits for employee services rendered in the prior years before the plan is initially adopted or before the existing plan is amended, it is also called unrecognized prior service cost 7. PBO – PV of total retirement benefits where the benefits are computed based on the employees’ future (highest or terminal) salary8. If P/Exp (has 6 components) < Contribution – overfunding – employees want this; prepaid pension expense 9. If P/Exp > Contribution (underfunding) – means there is an unpaid pension expense—liability 17-34SC 52kInterest on pBO beg 59kExpec. Return (96k) Actual return+ Asset Loss – Asset Gain during the yearAmort of PrSC 36kAmort of net loss 24kOthers if any -0-P/Exp 75kP/Exp 75kOCI 15k lossAOCI 60k Net Pens. A/L (+L) 30kNet Pens 100kCash