Intermediate Accounting, 15th Edition

CHAPTER 20 Accounting for Pensions and Postretirement Benefits

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

1. Distinguish between accounting for the employer's pension plan and accounting for the pension fund.
2. Identify types of pension plans and their characteristics.
3. Explain alternative measures for valuing the pension obligation.
4. List the components of pension expense.
5. Use a worksheet for employer's pension plan entries.
6. Describe the amortization of prior service costs.
7. Explain the accounting for unexpected gains and losses.
8. Explain the corridor approach to amortizing gains and losses.
9. Describe the requirements for reporting pension plans in financial statements.

Where Have All the Pensions Gone?

Many companies have benefit plans that promise income and other benefits to retired employees in exchange for services during their working years. However, a shift is on from traditional defined benefit plans, in which employers bear the risk of meeting the benefit promises, to plans in which employees bear more of the risk. In some cases, employers are dropping retirement plans altogether. Here are some of the reasons for the shift.

• Competition. Newer and foreign competitors do not have the same retiree costs that older U.S. companies do. Southwest Airlines does not offer a traditional pension plan, but United has a pension deficit exceeding $100,000 per employee.
• Cost. Retirees are living longer, and the costs of retirement are higher. Combined with annual ...