16.0 Pensions and Other Employment Benefits

Learning Objectives

After completing this chapter, you should be able to:

1. Describe the nature of a pension plan and identify the key issues in accounting for a pension plan.
2. Define and contrast defined contribution pension plans and defined benefit pension plans.
3. Prepare the accounting entries for a defined contribution pension plan.
4. Describe the various estimations required and elements included in the accounting for defined benefit pension plans, and evaluate the effects of these estimations on the accounting for these plans.
   • Calculate pension expense for a defined benefit pension plan and prepare the accounting entries for the plan.
   • Describe the accounting treatment of net defined benefit assets.
5. Discuss the challenges in accounting for other post-employment benefits.
6. Describe the accounting treatment for other employment benefits.
7. Identify the presentation and disclosure requirements for defined benefit pension plans.
8. Identify differences in the accounting treatment of post-employment benefits between ASPE and IFRS.

Introduction

Changing demographic patterns have recently thrust pension plans into the headlines. Many mature economies are experiencing low or non-existent growth combined with an aging population. A combination of declining birthrates and improvements in health care is shifting the overall composition of certain populations to people of retirement age. This shift creates a challenge for both public and private pension plans, many of which were established when expectations about life after retirement were quite different. As pension plans are put under increased pressure, it becomes even more important for stakeholders to have a clear understanding of the financial status of the plans and the risks they face as sponsors of the plans. This chapter will examine the accounting issues surrounding private (non-government) pension plans, as well as the treatment of other employment benefits offered by employers. This chapter only deals with the accounting issues of the employer providing the employment and post-employment benefits. The accounting for the pension plan and other benefit plans themselves (i.e., the accounting performed by the trustee of the pension plan assets) is described in IAS 26 and is not covered in this chapter.

Chapter Organization