Pension expenses are costs incurred by employers administering pension plans for employees, recorded in accounting reports and using appropriate methods. Expenses include service costs, projections, and amortized expenses. The pension expense is recorded on the income statement, and the structure of the plan determines which transactions are considered expenses. Government regulations also play a role in determining pension expenses.
A pension expense is any type of expense an employer incurs while administering a pension plan for its employees. Expenses of this type are recorded in the company’s accounting reports and records, and the different transactions are often accounted for using the most appropriate accounting method. The range and scope of pension expense involved in a given pension plan will depend on the overall structure of that plan, including the management of any contribution of employee contributions that the employer chooses to make to individual employee pensions.
There are several different types of transactions that may be included as pension expenses in the employer’s accounting records. All service costs associated with administering the plan are included, along with projections and actual amounts realized in returning assets that help generate interest income that is in turn added to the pension plan balance. Various amortized expenses may also be included, such as amortized gains or losses associated with the plan, and any amortization that may occur with various assets or transition obligations.
The amount of the pension expense is generally recorded on the income statement created by the company, and will reflect the total amount of expense accrued between the start and end dates that appear at the top of the statement. This approach makes it relatively easy to track gains or losses in the value of the pension program. Elsewhere in the accounting records, more detailed information is provided to help support the figures that appear on the income statement, making it relatively easy to identify the reasons for gains or losses.
As with most types of financial plans, the structure of the actual pension plan will determine which types of transactions may and may not be considered pensions and expenses. A pension plan that is based solely on employee contributions without any employer matching contribution will be relatively simple in terms of expense lines. When the employer makes contributions that are based on a matching program, or on factors such as a given employee’s years of service or gross income earned by an employee in a calendar year, the range of expenses that would apply and be recorded may be somewhat larger Government regulations on the establishment and administration of pension plans will also play a role in determining whether a transaction qualifies as a pension expense, or whether the transaction should be accounted for in some other way.
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