Pension Fund in 2007

Hi, Michael.

At the risk of sounding facetious...

How do you setup and track the inheritance that you MIGHT get from your rich uncle some day?

The serious answer is that you don't. Accounting is simply not designed to keep track of such contingencies.

There are some exceptions for reliable, quantifiable, independently verifiable estimates, but you probably don't have enough solid information to make such estimates. Your pension is about as quantifiable as your expectation of Social Security benefits some day, and I doubt that you've considered setting up and tracking those contingent future receipts.

Is this a traditional defined-benefit pension, which is based entirely on promises by your employer? Or is it a defined-contribution plan, which depends on future annual contributions and return on the fund's investments? Maybe it's one of those new cash-balance plans? Are you fully vested? Is "your" account earmarked for you, or do you share in a large fund for many employees? For us to offer any detailed guidance, we'd need answers to many questions.

On the other hand, if this is just for your own information and not to be used by third parties, such as a banker or other lender, then do it any way that will provide the answers that YOU seek. One way would be to create a new Investment Account. The next step would be to CAREFULLY read the latest statement you have from the fund manager. Then, depending on how detailed you want to be, you can decide which number to put in your new account.

At the risk of sounding facetious...

How do you setup and track the inheritance that you MIGHT get from your rich uncle some day?

The serious answer is that you don't. Accounting is simply not designed to keep track of such contingencies.

There are some exceptions for reliable, quantifiable, independently verifiable estimates, but you probably don't have enough solid information to make such estimates. Your pension is about as quantifiable as your expectation of Social Security benefits some day, and I doubt that you've considered setting up and tracking those contingent future receipts.

Is this a traditional defined-benefit pension, which is based entirely on promises by your employer? Or is it a defined-contribution plan, which depends on future annual contributions and return on the fund's investments? Maybe it's one of those new cash-balance plans? Are you fully vested? Is "your" account earmarked for you, or do you share in a large fund for many employees? For us to offer any detailed guidance, we'd need answers to many questions.

On the other hand, if this is just for your own information and not to be used by third parties, such as a banker or other lender, then do it any way that will provide the answers that YOU seek. One way would be to create a new Investment Account. The next step would be to CAREFULLY read the latest statement you have from the fund manager. Then, depending on how detailed you want to be, you can decide which number to put in your new account. Will it be today's balance, even though you might not get it for 10 or 20 years? Or you might not get it at all if you leave - or die, or the company goes bankrupt - before it vests? Will you calculate the future balance, then discount it back to today's value? Which interest rates will you use for future value of the present balance, then for present value of the future balance? Will you consider any of the many other contingent variables: future salaries; life expectancies of yourself, and of your spouse if the pension might continue after your death; the risk of forfeiture for any cause; etc.?

When you do retire and your pension is calculated, you might reconsider, especially if you accept a lump sum and invest it outside the plan. But if you start receiving monthly payments for the rest of your life, the most practical way to account for them is simply to record them as pension income each time you get a check.

RC