Defined Benefit Pension Plans: Checklists and Illustrative Financial Statements

Content refers to previous edition

• Checklists and Illustrative Financial Statements for Defined Benefit Pension Plans
  • Instructions
  • Financial Statements and Notes Checklist
  • Auditors' Report Checklist
• Illustrative Financial Statements and Auditor's Reports

Content refers to previous edition

FSP Section 7000

Checklists and Illustrative Financial Statements for Defined Benefit Pension Plans

Description

.01     Employee benefit plans include defined benefit pension plans, defined contribution pension plans, and health and welfare benefit plans. Defined benefit pension plans provide a promise to pay to participants specified benefits that are determinable and are based on such factors as age, years of service, and compensation.

.02     Defined benefit pension plans may be single employer plans or multiemployer plans. In addition, these plans may be funded through accumulated contributions and investment income (self-funded plans), insurance contracts (insured plans), or a combination of both (split-funded plans).  Contributions may be required from both employers and participants (contributory plans) or from employers only (noncontributory plans).

.03     Traditional defined benefit pension plans provide benefits that are defined in terms of a percentage of final average compensation or career average compensation, or as a flat dollar benefit per year of service.
Recently, new types of benefit formulas have become more popular, including-

1. Cash Balance Plans. A cash balance plan is a special form of career average compensation plan.  Typically, a cash balance defined benefit pension plan maintains hypothetical ''accounts'' for partidpants. The employer credits participants' ''accounts'' with a certain number of dollars each plan year, and promises earnings at a specified rate. Interest on the ''account'' balance is credited at a stated rate, which may be different from the plan's actual rate of investment return.
2. Pension Equity Plans. A pension equity plan is a defined benefit pension plan that has many of the advantages of the cash balance plan, but the benefit formula is similar to a finality program rather than a career average cash balance program. Under this arrangement, a participant is credited with ''points'' based on age, service or both. On termination of employment, a participant's final average compensation is multiplied by his or her accumulated points to determine a hypothetical account balance. This balance normally may be distributed as a lump sum or converted to an annuity.

.04     The Pension Benefit Guaranty Corporation (PBGC) guarantees participants in most defined benefit pension plans against the loss of certain pension benefits if the plan terminates, and it administers terminated plans in certain circumstances.
AICPA Employee Benefit Plan Audit Quality Center

.05     The AICPA Employee Benefit Plan Audit Quality Center celebrated its two-year anniversary in March 2006. Created with the goal of promoting quality employee benefit plan audits, this firm-based, voluntary membership Center now has over 1,080 member firms from around the country. Center member firms demonstrate their commitment to ERISA audit quality by joining the Center and agreeing to adhere to its membership requirements. Visit the Center Web site at www.aicpa.org/ebpaqc to see a complete list of Center members under Membership and to preview Center benefits.