Accountants' Handbook Volume Two: Special Industries and Special Topics, Eleventh Edition

Chapter 38. PENSION PLANS AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS^[32]

Vincent Amoroso, FSA

Deloitte Consulting LLP

Jason Flynn, FSA

Deloitte Consulting LLP

Timothy Geddes, FSA

Deloitte Consulting LLP

BACKGROUND, ENVIRONMENT, AND OVERVIEW

(a) INTRODUCTION.

The accounting for pensions and other forms of retirement and postemployment benefits underwent dramatic transformation in the 1980s and early 1990s. These changes placed a significant burden on companies and their accountants to understand the intricate concepts of accounting for pension and other types of benefits, assets, obligations, and periodic costs. This chapter has been written to explain those accounting concepts and to assist the reader in understanding and implementing them. The focus will be on the two distinct set of accounting standards that apply to pension and retirement plans—Statement of Financial Accounting Concepts (SFAS) No. 35, "Accounting and Reporting by Defined Benefit Pension Plans," and SFAS Nos. 87 and 88, "Employers' Accounting for Pensions" and "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits." SFAS No. 35 applies to the preparation of financial statements for the pension plan, as an entity. SFAS Nos. 87 and 88, on the other hand, specify the accounting to be followed in the financial statements of the plan sponsor. They also established new standards for measuring a company's annual pension cost and balance sheet pension obligations. ...