Recognizing Implicit Interest in Non-Funded Pension Plans.

Abstract When representatives of labor unions meet with employers to negotiate employment contracts, the discussions often include a consideration of pension plans. More than 20 million workers are now covered by some 25,000 private pension plans, and theft number is constantly increasing. Accounting Research Bulletin 47 defined a pension plan as, "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 estimating costs. The problems which arise in estimating these costs and charging them to income of the appropriate accounting periods include a consideration of both the so-called "past service costs" and the cost of current services. The past service cost is a problem only at the inception of a pension arrangement, yet has been given considerable attention by accountants. However, the equally important issue of how to deal with current service costs has been relatively neglected. As a result, these costs are often treated improperly in the accounts, particularly in the case of non-funded plans.