Pension Trust Funds | Governmental Accounting | CPA Exam FAR
How do you account for pension trust funds in governmental accounting? This lecture covers Public Employees Retirement System (PERS) pension trust funds — defined benefit vs defined contribution plans, multi-employer plans, and journal entries — a governmental accounting (FAR) topic for CPA candidates and accounting students.
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Video Timeline & Key Concepts:
0:00 — Introduction
0:28 — Core concepts: how pension plans work, defined benefit vs defined contribution
6:11 — Multi-employer plans: agent plans and cost-sharing plans
8:17 — Fiduciary financial statements and terminology (additions and deductions)
12:19 — Practical example: journal entries for a village pension fund
13:22 — Recording contribution receipts
15:02 — Recording benefit accruals and payments
17:12 — Investment activities: interest, dividends, and fair value adjustments
21:08 — Preparing the fiduciary fund statements
Frequently Asked Questions:
What is a pension trust fund?
A pension trust fund, also called a Public Employees Retirement System (PERS), is a fiduciary fund that holds contributions from governments and employees, invests them, and uses the returns to pay retirement benefits.
What is the difference between a defined benefit and a defined contribution plan?
In a defined benefit plan, the employer guarantees a specific retirement benefit and bears the investment risk. In a defined contribution plan, contributions are fixed and the employee bears the investment risk, similar to a 401k.
What is the difference between an agent plan and a cost-sharing plan?
In an agent multi-employer plan, each participating government maintains a separate account. In a cost-sharing plan, all participating governments pool their assets and obligations together.
What terminology do fiduciary funds use instead of revenues and expenses?
Fiduciary funds use the terms additions instead of revenues and deductions instead of expenses on the Statement of Changes in Fiduciary Net Position.
Why are actuaries needed for pension plans?
Actuaries estimate future pension obligations using variables such as life expectancy, salary growth, and retirement age, which is essential for measuring and funding the plan.
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