Companies offer benefit plans for retired employees in exchange for the services they provided in their years of employment. Notably, organizations are shifting from the traditional scheme of postretirement benefits where employers plan pension settlements, to modern schemes where the employee bears more risk in settling the benefit plan (Lightstone et al., 2018). Other organizations are doing away with postretirement benefits altogether (Lightstone et al., 2018). Newer companies are operating in competitive environments compared to older companies such as United Dynamics. Further, higher competition requires higher resource investment. Company managers face the dilemma of investing in innovations or supporting defined-benefits pension plans. Employees are living longer after employment leading to higher costs of post-retirement benefits. According to Lightstone et al. (2018), Fortune 500 companies are incurring over $25 billion costs in retiree benefits plans and healthcare coverage. The international financial reporting standards (IFRS) support discount rate approach in determining benefits paid to retired employees (Lightstone et al., 2018). Discount rates can reduce future financial obligations by assessing whether the postretirement benefits exceed cost of capital in operations.
Consequently, different accounting standards between the IFRS and US GAAP are leading to changes in pension settlement. For instance, US companies conducting business with foreign companies, must adopt an IFRS model into their operations (Lightstone et al., 2018). Prevailing issues with pensions can be remedied by adopting international standards of accounting. Granted, US companies can value their pension rates based on the international markets. For persons considering future employment, creating a personal retirement plan can reduce over-reliance on the employer for retirement benefits. The case study shows that older companies are shifting towards modern benefits settlement plans due to the gradual decrease in pension expenses. Research conducted by PWC suggests that companies are still willing to take responsibility for their employees retirement plans (Mody & McHale, 2018). However, they can only achieve parity through a balanced approach in sustaining operational costs and retirement settlement (Mody & McHale, 2018).
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References
Lightstone, K., McFadden, T., & Kocum, L. (2018). Pensions and Other Postretirement Benefits as Good as They Seem? Universal Journal of Accounting and Finance , 6(3), 83-91. https://doi.org/10.13189/ujaf.2018.060301
Mody, R., & McHale, J. (2018). Global retirement and pensions challenges. PWC , 1-21. https://www.pwc.com/uz/en/assets/pdf/global-retirement-and-pensions-challenges-review.pdf
