Question

To complete the assignment, you will be using financial statement excerpts from the 2018 10Ks of Delta, Honeywell, and Ford Motor Company. I have extracted the portions of the 10K you will require for the assignment and posted the information

4. What is the difference between a defined benefit pension plan and defined contribution pension plan? Does your employer offer a pension plan, and if so, what type of plan is it?

Excerpt from Ford Motor Company 2018 10K regarding Income Taxes NOTE 7. INCOME TAXES (Continued) Our accounting for deferred tax consequences represents our best estimate of the likely future tax consequences of events that have been recognized on our financial statements or tax returns and their future probability. In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. If, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, we record a valuation allowance Components of Income Taxes Components of income taxes excluding cumulative effects of changes in accounting principles, other comprehensive income, and equity in net results of affliated companies accounted for after-tax. for the years ended December 31 were as follows: 2016 2017 2018 Income before income taxes (in millions) U.S S 5,254 S 4,861 $ 2,051 Non-U.S 1,530 3,298 2,294 Total 6,784 8,159 4,345 Provision tori(Benetit from) income taxes (In millions) Current Federal (122) (125) 75 Non-U.S 630 868 690 State and local 12 85 (6) Total current 520 828 759 Deferred Federal 1,318 (1,214) (360) Non-U.S 593 121 239 State and local 225 195 12 Total deferred 1,664 (426) (109) Total 2,184 S 402 650 On December 22, 2017, the Tax Cuts and Jobs Act (H.R. 1) was signed into law, This act includes, among other items, a permanent reduction to the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, and requires immediate taxation of accumulated, unremitted non-U.S. earnings. As a result, at December 31, 2017, we recognized a tax benefit of $739 million from revaluing U.S. net deferred tax liabilities and tax expense of $219 million to record U.S. tax on unremitted non-U.S. earnings. Our 2018 tax provision includes an additional benefit of $123 million reflecting updates to the impact of the act on our global operations. Excerpt from Honeywell Inc 2018 10K regarding Employee Pension Benefit Plans Note 21. Pension and Other Postretirement Benefits We sponsor a number of both funded and unfunded U.S. and non-U.S. defined benefit pension plans. Pension benefits for many of our U.S. employees are provided through non-contributory, qualified and non-qualified defined benefit plans. All non-union hourly and salaried employees joining Honeywell for the first time after December 31, 2012, are not eligible to participate in Honeywell's U.S. defined benefit pension plans. We also sponsor defined benefit pension plans which cover non-U.S. employees who are not U.S. citizens, in certain jurisdictions, principally the UK, Netherlands, Germany, and Canada. Other pension plans outside of the U.S. are not material to the Company either individually or in the aggregate. We also sponsor postretirement benefit plans that provide health care benefits and life insurance coverage mainly to U.S. eligible retirees. None of Honeywell's U.S. employees are eligible for a retiree medical subsidy from the Company. In addition, the vast majority of Honeywell's U.S. retirees either have no Company subsidy or have a fixed-dollar subsidy amount. This significantly limits our exposure to the impact of future health care cost increases. The retiree medical and life insurance plans are not funded. Claims and expenses are paid from our operating cash flow. The following tables summarize the balance sheet impact, including the benefit obligations, assets and funded status associated with our significant pension and other postretirement benefit plans. Pension Benefits U.S. Plans Non-U.S. Plans 2018 2017 2018 2017 Change in benefit obligation: Benefit obligation at beginning of year $18,151 $17,414 $7,019 $6,483 Service cost 140 172 26 40 Interest cost 573 586 143 147 Plan amendments 30 (1) (356 (264) (9) (342) (65) Actuarial (gains) losses Benefits paid (1,111) (1,137) 1,234 (24) (253) (1,146) (109) Settlements and curtailments Foreign currency translation 614 Other (475) 13 Benefit obligation at end of year 16,141 7,019 18,151 6,182 Excerpt from Delta Inc 2018 10K regarding Lease Positions Lease Position as of December 31, 2018 The table below presents the lease-related assets and liabilities recorded on the balance sheet (in millions) Classification on the Balance Sheet December 31, 2018 Assets Operating lease assets Operating lease right-of-use assets S 5,994 Finance lease assets Property and equipment, net 490 Total lease assets S 6.484 Liabilitics Current Operating Current maturities of operating leases S 955 Current maturities of long-term debt and finance leases Finance 109 Noncurrent Operating Noncurrent operating leases 5.801 Finance Long-term debt and finance leases 294 Total lease liabilities 7,159 Undiscounted Cash Flows The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet Operating Leases Finance Leases (in millions) 2019 1.172 $ 127 2020 1,000 89 2021 819 75 33 2022 692 27 2023 654 Thereafter 4,200 111 Total minimum lease payments 8,537 462 Less: amount of lease payments representing interest (1,781) (59) Present value of future minimum lease payments 6,756 403 Less: current obligations under leases (955) (109) Long-term lease obligations S 5,801 $ 294

Answer 1

The differences between a defined pension plan and defined contribution pension plan is provided below:

In case of a defined pension plan, the employee is assured of a fixed income after his/her retirement. It can either be in the form of a lumpsum amount given at the time of retirement or in the form of a fixed monthly pension which is derived with the use of different variables (such as employment history, salary structure, etc.). The onus of payment of the pension amount is on the employer and therefore, this plan is considered to be riskier for the employer in case the amount contributed to (by the employer or/and the employees) to the pension fund falls short to pay for the employee's retirement benefits. It is important to note that the benefit of defined pension gets vested only after the employee has worked with organization/company for a certain period of time.

In case of a defined contribution plan, the employee and the employer contributes a defined/fixed amount of money (which is generally a fixed percentage of the employee's salary) to the retirement plan (which may include different forms of financial instruments). Here, the employer has no responsibility to pay the employee any fixed amount (in the form of pension) at the time of retirement and is therefore, less riskier from the employer's point of view. The employee can leave the organization at any point of time and he/she will still be entitled to receive all the money contributed in the plan and any interest or profit on such contribution. Losses, if any, will also have to be borne by the employee. However, the employee may not be able to withdraw the money (from the fund) as there are restrictions on withdrawals from such retirement plans upto a particular point of time.

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In my case, the pension plan is similar to defined pension plan whereby I would be entitled to receive a fixed pension after my retirement. I can get the same in the form of a lump sum payment or take some part as lump sum payment and receive the balance in the form of monthly pension.