Accounting Research BULLETINS
Issued by the Committee on Accounting Procedure American Institute of Accountants 270 Madison Avenue, New York 16, N. Y.
Copyright 1956 by American Institute of Accountants
September, 1956 No. 47
Accounting for Costs of Pension Plans
1. Variations in the provisions of pension plans in the United States, in their financial arrangements, and in the circumstances at-tendant upon their adoption, have resulted in substantial differences in accounting for pension costs. This bulletin indicates guides which, in the opinion of the committee, are acceptable for dealing with costs of pension plans in the accounts and reports of companies having such plans. It is not concerned with funding as such.
2. The term pension plan is here intended to mean a formal arrangement for employee retirement benefits, whether established unilaterally or through negotiation, by which commitments, specific or implied, have been made which can be used as the basis for esti-mating costs. It does not include profit-sharing plans or deferred-compensation contracts with individuals. It does not apply to informal arrangements by which voluntary payments are made to retired em-ployees, usually in amounts fixed at or about the time of an employee's retirement and in the light of his then situation but subject to change or discontinuance at the employer's will; where such informal arrange-ments exist, the pay-as-you-go method of accounting for pension costs generally is appropriate, although the accrual method is equally appro-priate in cases where costs can be estimated with reasonable accuracy.