Page 87 - Group Insurance and Retirement Benefit IC 83 E- Book

accumulation of the past-service cost and the normal costs less the benefit payments and

expenses, if any, since the effective date of the plan.

d) Normal cost.--This is the amount of the contribution to be made to the fund with
respect to the service of the employees during the current year on the assumption that the

prior-service costs as of the beginning of the year were fully provided for by the assets of
the fund.

e) Standard cost.--This is the amount of the normal cost plus an additional level cost to

be charged each year until the pension plan becomes fully funded.

f) Fully funded pension plan.--A pension plan will be considered fully funded when the

assets in the fund are sufficient to provide for all the benefits credited to the participants
at that point of time. The terms "contributed" or "contribution" as used above are meant

to be taken in the broad sense and thus include credits to book reserves as well as
contributions to insurance companies or trust funds. Also, "fund" as used in this paper is

meant to include book reserves, insurance company reserves, trust funds, and the like.

For convenience, this paper is divided into the following sections: present practices,

problems with present practices, accrual accounting, estimating the true cost,
determination of the standard cost, practical considerations, disclosure in the annual

statement, and conclusion.

PRESENT PRACTICES

The concern over accounting for pension charges centers on the determination of the

amount to be charged to operations each year. Also under discussion is the way the
amount should be shown on the financial statement of the corporation, where it should be

shown, and what supplemental information should also be provided in the annual report.

The present method of accounting for charges to pension plans on corporate financial
statements has evolved because it is simple and logical in many respects. This method is

to charge whatever is paid out in cash or accrued for the year. Companies which do not