Question.3099 - You have joined Member Company as an accounting manager. You were reviewing the financial statements to get yourself familiar with the company. While conducting the review, you had some concerns about their pension assets. Member Company had pension assets of $14 million and vested pension obligation of $12 million, but the projected benefit obligation was about $16 million. The pension assets were underfunded because the obligations were $16 million compared to the assets of $14 million. You approached the controller Bill Jensen and said to him, “Bill, while reviewing the financial statements, I noticed that we have a problem with the pension assets being underfunded by $2 million. We have pension assets worth $14 million compared to our outstanding obligations of $16 million. We need to clean that up and put some more funds in the pension assets.” Bill looked unconcerned. He replied, “I noticed that. No problem! Why don’t we fire the employees who are not vested because the vested pension obligation is $12 million compared to the pension assets of $14 million? What do you think?” ? How should you respond? ? What should you do?
Answer Below:
Contributions xx a xxxxxxx plan xxx made xx the xxxxxxxx alone xx the xxxxxxxx and xxx employee xxxx contributions xx both xxxxxxxx and xxxxxxxx This xx the xxxx common xxxxxx of xxxxxxxxxxxx In x Defined xxxxxxx pension xxxx DB xxxx the xxxxxxxx knows xxxxxxx the xxxxxx of xxxxxxx to xxxxxx at xxxxxxxxxx where xx in xxxxxxx Contribution xxxxxxx plan xx Plan xx employer xxxxxxxxx how xxxx will xx contributed xx the xxxx on x regular xxxxx The xxxxx to xxxxxxx the xxxxx of xx employer xxx s xxxxxxxxxxxx depends xx whether xxx employee xx vested xx non-vested xxxxxx is xxx employee xxxxx s xxxxx to xxx full xxxxxx of xxxxxxx receivable xxxx employer xxxx accrues xx the xxxxxxxx each xxxx but xxx become xxxxx property xxxx according xx a xxxxxxx schedule xxx U x Department xx Labor xxxxx governs xxxxxxxxxx plans xxx defines xxx types xx benefit xxxxx an xxxxxxxx can xxxxxxx Vesting xxx occur xxxxxxxxx such xx per xxxx or xx a xxxxx cliff xxxxx schedule xxxxx of xxxxxxxx vest xx a xxx time xxx purpose xx vesting xxxx benefits xx to xxxxxx talent xx providing xxxxxxxxx benefits xxxxxxxxxx upon xxxxx continuing xxxxxxxxxx with xxx firm xxxxxxxxxx the xxxxxxx period xxxxx an xxxxxxxx leaving xx between xxxxx lose xxxx amounts xxxx are xxx vested xx the xxxx of xxxxxxx But xxxx sometimes xxxxxxxxx when xxxxxxx employees xxx retained xxx they xx minimum xxxx till xxx time xxxx collect xxxxxxxx benefits xx the xxxxxxxx still xxxxxx employers xxxxxxx redistribute xxx departed xxxxxxxx rsquo x account xxxxx current xxxxxxxxx rsquo xxxxxxxxxx accounts xxxxxxxxx with x defined xxxxxxx plan xxx have xx work xxx five xxxxx before xxxxxxxx percent xxxxxx Or xxxxxxxxx may xxxxxx gradually xxxxxx in x defined xxxxxxx plan x non xxxxxx pension xxxx is xxx one xx which xxx employee xx yet xx complete xxx required xxxxx of xxxxxxx in xxxxx to xxxxxx vested xxxx pension xxxx requires x set xxxxxx of xxxxxxxxxx years xx service xxxxxx becoming xxxxxxxx to xxxxxxx benefits xxxxxxxxxx pensions xxxxxx not xxxxxxxx earned xxxxxxxxxx to x form xx deferred xxxxxxx for xxxxxxx performed xxxx the xxxxxx of xxxxxxxxxx in xxxxx Although xxxxxxx occurs xx one xxx it xx not xxxxxxx to xxxxxxx that xxx pension xxxxxxx for xxx years xx employment xx to xxxx day xxx entirely xxxxxx on xxxx day xxx example xx employee xxxxx s xxxxxxx may xxxx after xxxxxxxxxx of xxxxx of xxxxxxx however xxx employee xxxxx not xxxxxxx vested xxxxxx without xxxxx employed xxx the xxxxx and xxxx prior xxxxxxxxx part xx the xxxxx of xxx vested xxxxxxx after xxxxx must xxxx been xxxxxxxxxxxx to xxx first xxxxx and xxxx of xxxxxxxxxx In xxxxxxxxx to xxx case xxxxxxxxx while xxxx may xx right xx assuming xxxx the xxxxxx of xxx vested xxxxxxxxx would xxxxxxxx its xxxxxxxxxxxxxxx liabilities xxx associated xxxxxxxx he xx callous xx suggest xxxx firing xxxxxxxxx is x reasonable xxxxxxxx to xxxxxxxxxx the xxxxxxxxxxxx of xxxxxx Company xxxxxxx plan xxxxxxxxxxx dismissing xxxxxxxxxx employees xx the xxxxx of xxxxx vested xx not xxxxxx in xxx pension xxxx in xxxxx to xxxxx capitalizing x liability xxx recognizing xxxxxxxx is x impulsive xxx an xxxxxxx business xxxxxxxx I xx the xxxxxxx situation xxxxx discuss xxx ethical xxxxx and xxxxxxxxx implications xx the xxxxxxxxxxxx available xx well xx the xxxxxxxxxx requirements xxxxxxxx to xxxx situation xx any xxxxx time xxx pension xxxx may xxxx more xx in xxxxxxx or xxxxxxxxxxx or xxxx in xxxxxxx or xxxxxxxxxxx than xxxx actually xx required xx meet xxxxxxx pension xxxxxxxxxxx The xxx requires xxxx deficits xx made xx by xxx pension xxxxxxx within x given xxxxxx of xxxx So xx order xx amend xxx situation xxxxxx in xxxxxxxxxxxx plan xxxxxx be xxxx so xx to xxxxx the xxxxxxx assets xxxx pension xxxxxxxxxx ldquo xxxxxxx should xxxxxxxxx be xxxxxxxxxxx both xx protect xxxxxxxxx amp xxxxx to xxxxxxx benefits xxxxxxxxx to xxx terms xx the xxxxxxxxxx plan xxx employers xxx right xx modify xxx benefits xxxx offer xx making xx illegal xxx any xxxxxx to xxx quot xxxxxxxxx fine xxxxxxx expel xxxxxxxxxx or xxxxxxxxxxxx against x participant xx beneficiary xxx exercising xxx right xx which xx is xxxxxxxx under xxx provisions xx an xxxxxxxx benefit xxxx amp xxxx sect xxxxxxxxx employers xxxx preventing xx employee xxxx taking xxxxxxxxx of x plan xx from xxxxxxxx a xxxx in x discriminatory xxxxxx rdquo xxxxxxxxx The xxxxxxxxxxxx of xxxxxxxxx Pension xxxxx By xxxxxx C xxxxx retrieved xxxx http xxx brookings xxx research xxxxxxxx -corporate-pensions-pozen xxxxxxxx on xx May xxxx www xxxxxxxxxxxxxxxxx com xxxxxxx Non-Vested-Pensions-and-Divorce- xxxxx accessed xx th xxx http xxx statcan xx nbsp xxxxxxxxxx of xxxxxx force xxx paid xxxxxxx covered xx a xxxxxxxxxx pension xxxx RPP xxxxxxxx on xx May xxxxx Section xxxxxx therefore xx interpreted xxxx to xxxxxxx employees xxx right xx receive xxxxxxxx according xx the xxxxx of xxx applicable xxxx and xxxxxxxxx amp xxxxx to xxxxxx the xxxxxxxx they xxxxx By xxxxxx it xxxxxxx for xxx person xx amp xxxx discharge xxxx suspend xxxxx discipline xx discriminate xxxxxxx a xxxxxxxxxxx or xxxxxxxxxxx for xxxxxxxxxx any xxxxx to xxxxx he xx entitled xxxxx the xxxxxxxxxx of xx employee xxxxxxx plan xxx quot xxxx prohibits xxxxxxxxx from xxxxxxxxxx an xxxxxxxx from xxxxxx advantage xx a xxxx or xxxx applying x plan xx a xxxxxxxxxxxxxx manner xxxxx F x USLW xxxxxxxx Benefits xxx NDLR x Patricia xxxxxx Plaintiff-Appellant x ARVIDA xxxxxx SALES xxx ARSLP xxxxxxxxxxx Appellees xx - xxxxxx States xxxxx of xxxxxxx Eleventh xxxxxxx March xxxxxxxxx from xxxxx bulk xxxxxxxx org xxxxxx gov x F x d x html xxxxxxxx M xxxxxxxx S x and xxxxxx W x Optimizing xxx aging xxxxxxxxxx and xxxxxxxx dilemma xxxxx Finance xxxxxx Ippolito x A xxx labour xxxxxxxx and xxxx economic xxxxxxx liabilities xxxxx The xxxxxxxx Economic xxxxxx -More Articles From Accounting
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