From: Papa Rydoo
Date: October 25, 2010
Reference: Postretirement Plans
Acquisition of a company leads to many changes in the company and especially in the area of the retirement benefit plans for our company. It is complicated adjusting to benefits plans but with the required reporting, the transition will be smooth. The different types of pension plans we will focus on are; defined contribution, defined benefit, and other postretirement plans.
Defined Contribution Plan (DCP) Defined contribution plan is a retirement plan that an employer promises to contribute toward an employee’s retirement funds periodically. Most companies will match whatever an employee contributes
…show more content…
446). Other Postretirement Benefits (OPEB) Other Postretirement Benefits (OPEB) was issued by the FASB pronouncement SFAS No. 106 to deal with additional benefits offered by companies other than the retirement benefits. The lists of benefits are: tuition assistance, day care, legal services, housing subsidies, retiree care benefits, and life insurance (Schroeder, Clark, & Cathey, 2005, p. 445). Although most companies require that retirees to exchange services in other to receive the benefits, SFAS No. 106 requires companies to cost the OPEB over the working lives of the employees that qualifies to receive the benefits. Issues with Pension Benefits In the early 2000s most companies suffered the deterioration in their funded pension assets because of poor equity market and low interest rates but the pension obligations remained the same. About 20% of the companies have done away with the defined benefit plan (DBP) it was costing too much to find (Schroeder, Clark, & Cathey, 2005, p. 446). Employers have hired actuaries to determine how calculate the right amount of contribution to employee benefits plans. The two funding methods used by the actuaries were the cost approach and benefit approach. The cost approach uses the estimate approach to determine benefits to be paid in future and how much to fund the benefits. Benefit approach takes the amount of earned benefits to date and estimates the