Examples of Pension Plan Disclosures in Financial Statements

Introduction to Pension Plan Disclosures

Pension plan disclosures in the notes to financial statements provide critical information about a company’s obligations and assets related to employee retirement plans. These disclosures enhance transparency and allow stakeholders to assess the financial health of the organization. Below are three practical examples of pension plan disclosures, illustrating how different companies report this information.

Example 1: Defined Benefit Pension Plan Disclosure

In this example, a manufacturing company outlines its obligations under a defined benefit pension plan. The company aims to provide clarity on its pension liabilities and the assumptions used in its calculations.

The company, XYZ Manufacturing, offers a defined benefit pension plan to its employees. As of December 31, 2023, the plan’s projected benefit obligation (PBO) is $2 m i l l i o n, w i t h a f a i r v a l u e o f p l a n a s s e t s a m o u n t i n g t o$ 1.5 million. The company discloses the following:

Projected Benefit Obligation (PBO): $2,000,000
Fair Value of Plan Assets: $1,500,000
Funded Status: $(500,000) (underfunded)
Discount Rate: 5%
Expected Return on Assets: 6%

This disclosure helps investors understand the pension plan’s current funding status and the financial implications for the company.

Example 2: Multi-Employer Pension Plan Disclosure

This example focuses on a retail company participating in a multi-employer pension plan. Such plans involve multiple employers contributing to a single plan, making disclosures crucial for assessing shared liabilities.

ABC Retail Inc. participates in the National Retail Federation Pension Plan (NRFPP). As of December 31, 2023, the company includes the following disclosures:

Employer Contributions for the Year: $300,000
Accumulated Plan Benefits: $1,200,000
Percentage of Plan Funded: 80%
Participation Status: ABC Retail Inc. is not responsible for any unfunded benefits of the plan.

This example highlights how multi-employer plans can affect financial reporting and the importance of understanding shared liabilities among participating companies.

Example 3: Defined Contribution Plan Disclosure

In this final example, a tech company provides details about its defined contribution retirement plan. Unlike defined benefit plans, defined contribution plans depend on the contributions made by both the employer and the employee.

Tech Innovations Inc. offers a 401(k) plan to its employees, with the following key disclosures:

Employer Contribution Match: 50% of employee contributions, up to 6% of salary.
Employee Contribution Percentage: Average employee contribution is 5% of salary.
Total Employer Contributions for the Year: $150,000
Total Plan Assets at Year-End: $1,200,000

This disclosure clarifies the company’s commitment to employee retirement savings and provides insight into the financial health of the retirement plan.

Conclusion

These examples of pension plan disclosures in notes to financial statements illustrate the variety of reporting requirements companies face. Understanding these disclosures is essential for stakeholders to evaluate the financial implications of pension plans on an organization’s overall financial health.