At the end of the year, Multinational will have overfunded their Givonian pensions by about $100 million US dollars. This amount is material with respect to Multinational’s financial statements.
Required
How should this overfunding be reflected in Multinationals financial statements? Why? (Hint: When preparing your response, you might wish to consider the extent to which pension practices in Givonia differ from those in the US.)
Treatment of Overfunding of US Pension Plans under US GAAP
In the United States, any overfunding of a pension plan (i.e., when the Plan Assets are in excess of the obligation) is reported as an asset on the balance sheet.
In the US, the funds that have been set aside to meet an organization’s pension obligations are typically held by a private (i.e., non-government) agency which then pays the funds to the employees during their retirement. While the US government (actually the Pension Benefit Guarantee Corporation, the PBGC) sets minimum amounts that must be set aside each year, the US government does not generally become involved with respect to actually holding the plan assets or the payment of pensions.
In the United States, if a company overfunds their pension plan, they may terminate the plan and reclaim the overfunding (i.e., they can get their money back).