Chapter 14 Post-employment Compensation

1. Chapter 14 Post-employment Compensation • Contrast the cash and accrual approach to accounting for pensions. • Understand the nature of pensions. • Describe the similarities and differences between pensions and OPEBS.

2. Accounting for Post-Employment Compensation • Two topics: Pensions and OPEBs • The basic question? • Two answers.

3. Pensions • Defined? • Two types? • The four parties involved? • Twin Accounting issues: • 1. cost (expense) • 2. owe (liability)

4. Pension Pronouncements • Cash Method • Accrual and Matching (APB #8, 1966) • Legal form • Pension expense • Four concerns….

5. Pension Pronouncements • Liability approach (SFAS No. 87, 1985) • Economic substance • Pension liability • One method • Two questions…..

6. Two Difficult Pension Questions: • 1. Whose liability? When liable? • 2. Pension tension (present or future liability)? • Example: Case 14.1 The Bonus Case. • Foote & Tick owe? • EOY liability to C.P.? • Updates

7. OPEBS • Nature • Benefits Included

8. OPEBs • Part of employment contract: • “To: Ms. Janine Smith, and • subject to change at the discretion of the firm, at retirement age (60), we will fully cover Ms. Smith and her dependent family members with the following benefits xxx until her death.”

9. OPEBs vs. Pensions • Characteristics vs pension... • Exhibit 14.2 • Conclusion?

10. Accounting for OPEBs • Three Accounting issues • 1) Liability? • 2) How measured? • 3) When reported?

11. OPEBs Pronouncement • SFAS No. 106, 1990 • Four objectives of No. 106 • Answers (based on SFAS No. 87): • 1. Yes, deferred compensation. • 2. Projected costs of healthcare. • 3. Amortized over hire to eligibility date. • Counterarguments.

12. OPEBS Controversy • Current concerns • Cost: $1 trillion • Reliability of estimates • Cancellations: blame who? • SFAS No. 132 (1998) Disclosures about pensions and OPEBS • Updates