Accounting for pensions and post-retirement benefits disclosure

Accounting for Postretirement Health Care and Life Insurance Benefits necessitates disclosures regarding an employer's accounting. These include a delineation of the provision of benefits and the groups of employees given coverage, a delineation of the employer's prevailing accounting and financing policies for such benefits and lastly the cost of such benefits acknowledged for the period. In particular, this is effective for the financial statements prepared by organizations for the financial period ending subsequent to December 15, 1984 with respect to postretirement health care and life insurance benefits that are provided not only in the United States but also international nations. Nonetheless, for financial periods prior to June 15, 1985 that lack data and information regarding benefits provided in foreign nations, it is not mandatory to include them (FASB, 2017).

Moreover, the net pension liability or net pension assets have to be included in the financial statements as an asset or liability respectively. Any changes in this asset or liability that are yet to be included in the income reported have to be included in other comprehensive income. In the case of pensions, imperatively, the retirement benefits are a fixed amount in general with regard to the terms set for a contract, with the period or term not predetermined. In addition, it is more challenging and harder to make an estimation of the benefits of healthcare plans owing to the fact that the term is not predetermined but also because the benefits are reliant on health care costs during the period when the care is being provided (FASB, 2017).

SFAS No. 87 indicates the differences between prevailing and past accounting practices for pensions. The most substantial changes to previous practice have an impact on employer's accounting for a single-employer well-defined benefit pension plan, even though some provisions are also applicable to an employer that takes part in a multiemployer plan or sponsors a defined contribution plan. A major change is the transition from cash accounting to accrual accounting. The FASB in 1966 came to the conclusion that aspects such as cash that influence decisions in funding ought not to be permitted to influence accounting outcomes. In the application of accrual accounting to pensions, only three important elements of past pension accounting are maintained. These include reporting net cost, delaying recognition of particular events, and offsetting liabilities and assets (FASB, 2017).

Question Two

Taking the research done into consideration, there are recommended changes to the guidance or rules in the present day, which would enhance the financial accounting and reporting of Postretirement Health Care and Life Insurance Benefits. One of the key recommendations encompasses exposure, which takes into account placing an entity's total and complete pension together with other postretirement benefit liability less the fair value of the plan assets on the statement of the financial position instead of simply placing it as a footnote as necessitated in the present day, which makes it challenging for investors to comprehend. A second recommendation encompasses transparency. This would force entities to account for postretirement benefits in a manner that is more transparent. This will alter the presentation in the statement of financial position. Companies will face the prospect of recording in the financial statements a negative net worth. Moreover, this is imperative because not only is postretirement benefits an important accounting issue, but is also influences a substantial number of Americans both in a direct or indirect manner whilst making preparations for retirement (PWC, 2017).

Question Three

One of the key significant ways in which the future of accounting for these benefits could change, based on the prospective changes in the business and political climate that I foresee encompasses the reporting of health care benefits. It is imperative to note that these benefits are dependent upon the cost of health care that is provided or rendered at the time. This is largely going to be impacted by the prevailing political climate. This can be supported by the fact that the new Trump administration purposes to overhaul and make significant changes to Medicare and Medicaid. These are bound to significantly alter the changes in benefits in healthcare, especially with respect to Postretirement Health Care and Life Insurance Benefits (Fitzgenrald, 2017).

Question Four

A scenario in which at least two kinds of Postretirement Health Care and Life Insurance Benefits change includes the use of a standard discount rate. In the contemporary, the discounting rate employed in calculating the present value of a plan's projects benefit obligations together with the expected return on plan assets is left to the discretion of the management. Therefore, using a standard rate and not letting this particular aspect be determined by management would change the funding of the plan and also the expected return on plan assets (Bachan et al., 2011).

Question Five

There are key arguments that can support these proposed changes to the Chief Financial Officer. To begin with, it is imperative to note that the discounting rate is employed in computing the present value of a plan's forecasted benefit obligations and the expected return on plan assets. Bearing in mind that since the rate is left to the discretion of the management, then it implies that if management employs a higher discounting rate, then the PV of the obligations will be significantly lower. Similarly, the greater the expected yield, the lesser the extent to which the entity will be necessitated to contribute to the plan. This recommendation is therefore significant because these estimates are in fact at risk of being manipulated by an entity's management (Bachan et al., 2011).

References

Bachan, S. A., Briscoe, M., Conrecode, J., Fleming, E., & Volkan, A. G. (2011). Controversies in accounting for post-retirement benefits. Journal of Business & Economics Research (JBER), 6(9).

FASB. (2017). Disclosure of Postretirement Health Care and Life Insurance Benefits (Issued 11/84). Retrieved from: http://www.fasb.org/jsp/FASB/Pronouncement_C/SummaryPage&cid=9010350

FASB. (2017). EMPLOYERS' ACCOUNTING FOR PENSIONS (ISSUED 12/85). Retrieved from: http://www.fasb.org/summary/stsum87.shtml

FASB. (2017). EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (ISSUED 12/90). Retrieved from: http://www.fasb.org/summary/stsum106.shtml

Fitzgerald, J. (2017). Beyond Obamacare -- How Trump and Price will disrupt the health care system. CNBC. Retrieved from: http://www.cnbc.com/2017/01/23/trump-price-plans-for-obamacare-medicare-and-medicaid-commentary.html

PWC. (2017). Rethinking postretirement benefits. Retrieved from: http://www.pwc.com/us/en/corporate-governance/assets/pension-paper.pdf