In: Accounting
Analyzing and Interpreting Pension
Disclosures
General Mills, Inc. reports the following pension footnote in its
10-K report.
Defined Benefit Pension Plan ($ millions) | 2013 | 2012 |
---|---|---|
Change in Plan Assets | ||
Fair value at beginning of year | $ 4,353.9 | $ 4,264.0 |
Actual return on assets | 698.7 | 56.3 |
Employer contributions | 223.1 | 222.1 |
Plan participant contributions | 15.2 | 20.3 |
Benefit payments | (222.6) | (203.3) |
Foreign currency | (2.2) | (5.5) |
Fair value at end of year | $ 5,066.1 | $ 4,353.9 |
Change in Projected Benefit Obligation | ||
Benefit obligation at beginning of year | $ 4,991.5 | $ 4,458.4 |
Service cost | 124.4 | 114.3 |
Interest cost |
237.3 |
237.9 |
Plan amendment | 0.2 | (13.4) |
Curtailment/other | -- | (27.1) |
Plan participant contributions | 15.2 | 20.3 |
Medicare Part D reimbursements | -- | -- |
Actuarial loss (gain) | 237.5 | 405.7 |
Benefits payments | (222.8) | (203.5) |
Foreign currency | (1.9) | (5.9) |
Acquisitions | -- | 4.8 |
Projected benefit obligation at end of year | $ 5,381.4 | $ 4,991.5 |
Estimated benefit payments . . . are expected to be paid from
fiscal 2014–2023 as follows:
(in millions) | Defined Benefit Pension Plans |
---|---|
2014 | $ 236.3 |
2015 | 243.6 |
2016 | 251.6 |
2017 | 260.3 |
2018 | 270.1 |
2019-2023 | $ 1,512.3 |
(a) Which of the statements below best describes what is meant by
service cost and interest cost?
Service cost represents the additional pension benefits earned by employees during the current year but paid to employees in the future. Interest cost is the expense we incur on funds borrowed by the pension plan.
Service cost represents the wages earned by employees managing the pension plan during the current year. Interest cost is the expense we incur on funds borrowed by the pension plan.
Service cost represents the wages earned by employees managing the pension plan during the current year. Interest cost is an expense that accrues on the pension obligation during the year.
Service cost represents the additional pension benefits earned by employees during the current year but paid to employees in the future. Interest cost is an expense that accrues on the pension obligation during the year.
(b) What is the total amount paid to retirees during fiscal
2013?
Answer($ million) ASNWER
MULTIPLE CHOICE
What is the source of funds to make these payments to retirees?
pension liabilities
operating cash flows
pension obligations
pension assets
(c) Compute the 2013 funded status for the company's pension
plan.
Answer($ million) ANSWER?
(d) Which of the following statements best describes what are the
plan amendment adjustments, and how they differ from actuarial
gains and losses? THE BOTTOM ARE THE MULTIPLE CHOICE
Actuarial gains (losses) are decreases (increases) to the PBO resulting from changes in the assumptions used to estimate the pension or health care liability, while amendment adjustments are changes to the liability arising from amendments to the plan itself.
Actuarial gains (losses) are decreases (increases) to the PBO resulting from changes in the assumptions used to estimate the pension or health care liability, while amendment adjustments are adjustments made in accounting for the plan as a result of those estimates.
Actuarial gains and losses represent charges that the pension plan incurs from actuaries that it hires to perform various estimates, while amendment adjustments are adjustments made in accounting for the plan as a result of those estimates.
Actuarial gains and losses represent charges that the pension plan incurs from actuaries that it hires to perform various estimates while amendment adjustments are changes to the liability arising from amendments to the plan itself.
(e) General Mills projects payments to retirees of over $236
million per year. Which of the following statements best describes
how it is able to contribute only $223.1 million to its pension
plan?THE BOTTOM ARE THE MULTIPLE CHOICE
Federal law does not require companies to fund pension plans. Any contributions that General Mills makes are purely voluntary.
The funding for payments to retirees comes from the pension assets. General Mills, therefore, does not need to contribute its own funds to the pension plan.
Contributions to pension plans are made mostly by employees. Any contributions that General Mills makes are purely voluntary.
The funding for payments to retirees comes from pension assets. General Mills' plan assets yield investment returns that currently provide the cash inflow.
(f) Which of the following statements best describes the effect
from a substantial decline in the financial markets on General
Mills' contribution to its pension plans?THE BOTTOM ARE THE
MULTIPLE CHOICE
Should pension investments decline as a result of a decline in the financial markets, General Mills might be required to increase its cash contribution to the pension plan.
General Mills' contributions to its pension plans are purely voluntary. Fluctuations in the general financial markets would, therefore, have no effect.
Any shortfall in contributions is covered by contributions from the Federal Government under its various pension benefit guarantee programs. Fluctuations in the general financial markets would, therefore, have no effect.
General Mills' pension plans are not affected by fluctuations in the general financial markets. There would be no effect on General Mills.
a) | Service Cost representsthe additional pension benefits earned by employees during the current year but paid to employees in the future. Interest cost is an expense that accrues on the pension obligation during the year. | |||||
(Reference FASB Codification No.715) | ||||||
b) | $222.6 Million; Pension Assets | |||||
c) | $315.3 Million; Net Pension Liability as at 2013 is underfunded by this amount. | |||||
($5,381.4-$5,066.1) | ||||||
d) | Actuarial gains (losses) are decreases (increases) to the PBO resulting from changes in the assumptions used to estimate the pension or health care liability, while amendment adjustments are changes to the liability arising from amendments to the plan itself. | |||||
e) | The funding for payments to retirees comes from pension assets. General Mills' plan assets yield investment returns that currently provide the cash inflow. | |||||
f) | Should pension investments decline as a result of a decline in the financial markets, General Mills might be required to increase its cash contribution to the pension plan. | |||||