A headline in the Wall Street Journal stated, "Firms Increasingly Tap Their Pension Funds to Use Excess Assets." What is the accounting issue related to the use of these "excess assets" through plan terminations?
INTRODUCTION
Normally a company have two types of pension plan, over funded pension plans and underfunded pension plans. An over funded pension plan is a company retirement plan that has more assets than liabilities.In simple words, there is a surplus amount of money needed to cover current and future retirements.
An underfunded pension is a company sponsored retirement plan that has more liabilities than assets. That means the money needed to cover current and future retirements is not readily available.
In our case the firm is increasingly tap their pension funds to use excess assets. So the firm is using over funded pension plan.
ACCOUNTING ISSUES
The financial accounting standards board (FASB) affected changes to the accounting of defined benefits pension plans, but statement of financial accounting standards (SFAS) 86 has not resolved the issue of the valuation of excess pension assets as a corporate assets. When accumulated benefits obligations exceeded the value of the plan assets, the FASB required employers to recognize a liability but did not require the recognition of an asset where pension fund assets exceed promised benefits. The Employee Retirement Income Security Act requires that pension assets be managed for the benefit of plan participant, and shareholders should not regard corporate access to pension assets as definite.
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