Advanced Financial Management and Analysis

Choose a company from the S&P 500 Most Underfunded Pension Plans list at the end of the S&P 500’s Biggest Pension Plans Face $382 Billion Funding Gap (Links to an external site.) article. Obtain the 10-K reports for this company for the last three years.

In your paper,

  • Determine whether your company complies with generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS) in its financial reporting.
  • Determine if the pension plan(s) is (are) part of a multi-employer plan or if the pension plans are single employer plans.
  • Describe the components of the company’s defined benefit costs.
    • Illustrate the trend in these costs over the latest 3 years.
  • Critique the cash flow impact of the pension plan in each of the last 3 years.
  • Identify the assumptions used each year for the calculations of pension plan obligations and expense amounts.
  • Note any changes in assumptions over the 3-year period.
    • Analyze the impact these changes have had on the reporting of the pension plan obligations (e.g, periodic cost, net pension liability, etc.)
  • Determine if the assumptions used each year are internally consistent.
  • Determine if the expected rate of return on plan assets is reasonable, given the stated targeted asset allocation of the plan.
  • Compare the most recent net underfunded pension liability to your company’s current market equity and total debt.
    • Justify whether the amount of the net underfunded pension liability is reasonable based on this comparison.
  • Estimate the amount of annual cash flow the company would have to contribute to the plan if the company wanted to fully fund the plan by the end of 15 years.
    • Compare this amount to the company’s operating cash flow and capital expenditures from each of the past 3 years.
  • Explain the role of the Pension Benefit Guaranty Corporation (PBGC).
    • Predict the impact the failure of this pension plan would have on the PBGC as well as the participants in the plan.
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