Ricoh 2005 Annual Report Download - page 44

The Company and certain of its subsidiaries have various trusted contributory
and noncontributory employees’ pension fund plans covering substantially all
of their employees. Under the plans, employees are entitled to lump-sum
payments at the time of termination or retirement, or to pension payments.
Under the terms of the domestic employee’s pension fund ( “EPF”) plan, the
government mandated welfare pension insurance benefit was included and
commingled with the primary corporate benefit provided by Ricoh. These
contributory and non contributory plans were funded in conformity with
governmental regulations which basically require an employer to contribute the
unfunded benefit over 20 years.
As noted above, the domestic EPF plan was composed of ( 1) a corporate defined
benefit portion established by Ricoh and ( 2) a substitutional portion based on
benefits prescribed by the government ( similar to social security benefits in the
United States) . Ricoh had been exempted from contributing to the Japanese
Pension Insurance ( “JPI”) program that would otherwise have been required if
it had not elected to fund the government substitutional portion of the benefit
through an EPF arrangement. The plan assets of the EPF were invested and
managed as a single portfolio for the entire EPF and were not separately
attributed to the substitutional and corporate portions. In June 2001,
Contributed Benefit Pension Plan Law was newly enacted and permits an
employer to elect to transfer the entire substitutional portion benefit obligation
from the EPF to the government together with a specified amount of plan assets
pursuant to a government formula. After such transfer, the employer would be
required to make periodic contributions to JPI, and the Japanese government
would be responsible for all benefit payments. The corporate portion of the EPF
would continue to exist exclusively as a corporate defined benefit pension plan.
Pursuant to the new law, Ricoh received an approval of exemption from the
Minister of Health, Labor and Welfare, effective January 1, 2003, from the
obligation for benefits related to future employee service with respect to the
substitutional portion of its EPF. Ricoh received government approval of
exemption from the obligation for benefits related to past employee service in
January 2004 with respect to the substitutional portion of its domestic
contributory plan. The transfer to the government was completed on March 16,
2004.
Ricoh accounted for the transfer in accordance with EITF Issue No. 03-2
“Accounting for the Transfer to the Japanese Government of the Substitutional
Portion of Employee Pension Fund Liabilities” ( “EITF 03-2”). As specified in
EITF 03-2, the entire separation process is to be accounted for at the time of
completion of the transfer to the government of the substitutional portion of the
benefit obligation and related plan assets as a settlement in accordance with
SFAS No. 88 “Employers’ Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits”. As a result of the
transfer, Ricoh recognized as a subsidy from the Japanese government an
amount equal to the difference between the fair value of the obligation deemed
“settled” with the Japanese government and the assets required to be transferred
to the government. The subsidy that Ricoh recognized amounted to ¥56,972
million. In addition, Ricoh recognized as a settlement loss equal to the amount
calculated as the ratio of the obligation settled to the total EPF obligation
immediately prior to settlement, both of which exclude the effect of future
salary progression relating to the substitutional portion, times the net
unrecognized gain/loss immediately prior to settlement, which amounted to
¥48,657 million. These gains and losses were included in operating income.
In addition to the EPF plan, the Company had maintained a defined benefit
plan for certain qualified employees. Effective January 1, 2004, the Company
liquidated this plan and recorded a settlement loss of ¥5,958 million which was
included in selling, general and administrative expenses in the consolidated
statement of income.
The changes in the benefit obligation and plan assets of the pension plans for
the years ended March 31, 2004 and 2005 are as follows:
43 ANNUAL REPORT 2005
1 1 . PENSION AND RETIREMENT ALLOWANCE PLANS
Thousands of
Millions of Yen U.S. Dollars
2004 2005 2005
Change in benefit obligation:
Benefit obligation at beginning of year ¥522,275 ¥308,004 $2,878,542
Service cost 15,694 14,762 137,963
Interest cost 12,719 9,218 86,150
Plan participants’ contributions 171 457 4,271
Amendments ( 53,563) (91) (851)
Actuarial loss ( benefit) ( 7,420) 2,697 25,205
Settlem ent ( 164,522) (4,316) (40,336)
Benefits paid ( 15,378) (19,818) (185,215)
Foreign exchange impact ( 1,972) 3,572 33,383
Benefit obligation assumed in connection with business acquisition – 23,716 221,645
Benefit obligation at end of year ¥308,004 ¥338,201 $3,160,757