1. Chapter 14 Post-employment Compensation
Contrast the cash and accrual approach to accounting for pensions.
Understand the nature of pensions.
Describe the similarities and differences between pensions and OPEBS.

2. Accounting for Post-Employment Compensation
Two topics: Pensions and OPEBs
The basic question?
Two answers.

3. Pensions Defined? Two types? The four parties involved?
Twin Accounting issues:
1. cost (expense)
2. owe (liability)

4. Pension Pronouncements
Cash Method
Accrual and Matching (APB #8, 1966)
Legal form
Pension expense
Four concerns….

5. Pension Pronouncements
Liability approach (SFAS No. 87, 1985)
Economic substance
Pension liability
One method
Two questions…..

6. Two Difficult Pension Questions:
1. Whose liability? When liable?
2. Pension tension (present or future liability)?
Example: Case 14.1 The Bonus Case.
Foote & Tick owe?
EOY liability to C.P.?
Updates

7. OPEBS
Nature
Benefits Included

8. OPEBs Part of employment contract: “To: Ms. Janine Smith, and
subject to change at the discretion of the firm, at retirement age (60), we will fully cover Ms. Smith and her dependent family members with the following benefits xxx until her death.”

9. OPEBs vs. Pensions Characteristics vs pension... Exhibit 14.2
Conclusion?

10. Accounting for OPEBs Three Accounting issues 1) Liability?
2) How measured?
3) When reported?

11. OPEBs Pronouncement SFAS No. 106, 1990 Four objectives of No. 106
Answers (based on SFAS No. 87):
1. Yes, deferred compensation.
2. Projected costs of healthcare.
3. Amortized over hire to eligibility date.
Counterarguments.

12. OPEBS Controversy Current concerns Cancellations: blame who?
Cost: $1 trillion
Reliability of estimates
Cancellations: blame who?
SFAS No. 132 (1998) Disclosures about pensions and OPEBS
Updates