Accounting for Pensions and Other Post-Retirement Benefits

Accounting Principles

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Accounting for Pensions and other Post-Retirement Benefits

Introduction

The postretirement benefits plans have been in existence for a long period. At some instances, in adjunct to the pension plans of an organization, there used to be a little attention being granted to the financial accounting standards that board on the decision made about the potential liabilities and other costs of the specified pension plans.

This led to the issuance of FASB Statement No. 106 on the Employers' Accounting for Post-Retirement and other Benefits to the Pension with effective date from December 1990. Such an adoption of the SFAS 106 had a significant benefit of exposing the considerable any liabilities that are not fundable and are linked with the postretirement benefits plans (Miller and Bahnson, 2007).

            The theory that surrounds the postretirement benefits has significantly changed. The manner of recognition, measurement and other rules of reporting for a definite pension plan require that such standards are measured on the accrual basis of accounting.

This implies that all the expenses assets and liabilities must be recognized.  As much as the SFAS 87 demands that the pension expense should be recognized in the income statement, the information that governs such an amount to be recognized must be explained in the footnotes and should not be truly reported in the financial statements reports.  

            The main changes in the practices of accounting have given essential information to the users of financial statements. In as much as the FASB does the recognition of the main information and facts, for instance, the fair value of the planned assets and other liabilities that are buried in the footnotes.

 It is concluded that the completed financial statements that can be recognized to the extreme. Such lack of complete disclosure could otherwise lead to the lack of transparency on the issues that are of concerned to the funded status of such pension plans.

The defined post- retirement benefits plans that have set forth the terms of the exchange that takes place the employer and employee. It consequently follows that post retirement benefits are never the gratuities payments, but they form a portion of the employee's compensated amount for the service that has been rendered.

 Since the ability to administer recognition for the post-retirement health care benefits and their treatment has been a subject of discussion. By applying the new concept of accrual basis of accounting, no obligations will exist before the relevant payments of the post-retirement benefits. The reason being, failure to administer recognition and further obligation before the payments impairs the importance and the integrity of the financial statements of the employer.