Page 89 - Group Insurance and Retirement Benefit IC 83 E- Book
P. 89
cost," when so used, usually means the prior-service cost less the current assets, valued at
cost.
The information shown in the footnotes to the annual statement varies substantially.
Some companies say nothing, while others go into considerable detail. Generally
speaking, there are no balance-sheet items with respect to pension-plan liabilities. For
plans which are qualified with the Internal Revenue Service, contributions are made to an
irrevocable fund for the employees and their beneficiaries, and the assets are not assets of
the corporation. Similarly, most corporations consider the liability for pension benefits to
be contingent on future events and thus not appropriate for entry on the balance-sheet
account.
Occasionally, if conditions warrant, there may be accrual items with respect to
contributions due and unpaid. A few companies have chosen to establish a book reserve
on the balance sheet to provide the benefits of the plan. However, this procedure is
seldom used today because of the tax tax advantage of having a qualified pension plan
requiring a separate fund.
Usually, whenever there is a change in the benefit provisions of a pension plan, and less
frequently when there is a change in the actuarial assumptions or methods, comments will
be made in the footnotes to the annual statement reflecting the change in the prior-service
costs due to these changes. Information will sometimes be volunteered as to how this
increased or decreased prior-service cost will be met in future years.
Whether or not the increase or decrease in prior-service cost is reflected in the footnotes
depends on the circumstances of the case. Consideration is given to the size of the item,
prior commitments made to stockholders regarding future changes in the plan, and the
attitude of the corporation, their lawyers, and the auditors regarding the importance of
such disclosure. There is no uniformity of practice in this area.
The Securities and Exchange Commission sets forth in its "Regulations" that certain
information must be disclosed in the proxy statements. Rule 3-19 of Regulation S-X has
the following statement:
