Employee Benefits Flashcards
Two types of retirement plans
Defined contribution plans
Defined benefit plans
Short term benefits
Accrued as an expense in the period the employee works
ie annual leave, car allowances etc
Defined contribution plan
Employer contributes a set amount to a fund but does not guarantee a set amount to be paid out during retirement.
Pension expenses for Defined contribution plan
Includes:
- The amount contributed in current period
- Past service contributions
- Net interest costs if over 12 months between the work service and the contribution
Defined benefits plan
The amount paid out is determined by the plan.
ex 1.5% for each year worked at salary of $50,000
= 1.5% x 20 years x 50,000 = $15,000 paid out every year
Actuarial risk
Don’t know how long employee will work for you, live past retirement etc
If investments don’t cover the pay out the entity is liable to pay
Defined benefits plan
Off balance sheet accounts
defined benefits obligation DBO
Plan assets
= Net defined benefit asset/ liability (Goes on BS)
Defined benefits plan
I/s accounts
Pension expense (current and past service costs) Net interest cost (financing)
Defined benefits plan
Balance sheet account
Net defined benefit asset/ liability
Defined benefits plan
OCI
Remeasurement component
DBO
PV of all future employee benefits estimated to be paid out
Plan assets
Assets in the fund
Net interest cost
Interest expense on DBO - interest income on plan assets
Net defined benefit asset/ liab
FV of plan assets - DBO = defecit / surplus
Remeasurement gains/ losses
Expected value of DBO and Plan assets
- Actual values of DBO and Plan assets
