Asssigment Essay Example | Topics and Well Written Essays - 1750 words

Asssigment - Essay Example The management regularly deducts the pension contributions from the employee’s salaries. Another pension plan version occurs when the company contributes the entire amount to a lump sum pension fund account. Consequently, the employee can select a plan that generates a higher retirement benefit return. Investing in a riskier pension fund will increase retirement benefit returns. The employee can also choose another plan where the investments are funneled into a safer fund that generates a lesser benefit return (Kieso et al., 2006). Additionally, the employee can choose to receive the retirement amount in one lump amount or the employee can decide to receive the retirement amount in equal monthly installment amounts. The second method allows the retiree to receive the monthly retirement benefits throughout one’s lifetime (Kieso et al, 2006, p. 1244). Funding principles. The fund is also classified as a plan. The fund entity is a separate agency that manages companiesâ₠¬â„¢ pension plans. The fund entity receives the money invested by the company. When the employee retires, the fund company distributes the pension and other retirement benefits. The employer contributes to the pension fund and generates earnings. The employee receives benefits as pension fund recipients. The fund agency accumulates the employers’ contributions as either contributory or noncontributory (Kieso et al., 2006, p. 1244). Defined benefit plan. The defined benefit plan includes the amount of benefits that the employees will receive when they decide or are forced to retire. The state requires that employees are mandatorily required to retire when they reach a certain age. The company allocates a regular amount for the employees’ retirement benefit plan. The benefits are based on the employee’s total pension fund contributions. Likewise, the retirement amounts are based on the salaries of the employees. Employees with higher salaries will receive higher pension retirement benefits when compared to the salaries of the lower ranking line and staff employees (Kieso et al., 2006, p. 1211). Defined contribution plans. Under this plan, the employer contributes a regular amount to the pension trust. A formula is used to decide the monthly contributions. The formula incorporates the number of years of the employee’s work, the company’s business profits, and the salary. The plan indicates the amount that the employers will contribute to the plan. However, the plan does not indicate the amount that the employees will receive as retirement benefits. An example is the 401 (k) plan (Kieso et al., 2006, p. 1244). Pension fund allocation. In terms of the formulation, different companies allocate different pension expense amounts for different pension fund budgets. During 2009, General Motor’s $98,527 pension fund required a $3,405 pension expense. During 2009, the Coca Cola Company’s $3,032 pension fund amounts require d a $218 pension expense budget. During the same accounting period, the Merck company’s $10,835 pension fund needed a $407 pension fund expense (Kieso et al., 2009, p. 1211). Components of pension expense. In terms of formulation, accounting for pension funds entails allocating the cost of the retirement funds to the appropriate accounting period. The service cost forms a part of the pension expense total. The interest on the liability should be added