Omron 2007 Annual Report Download - page 67

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The Company and its domestic subsidiaries sponsor termina-
tion and retirement benefit plans which cover substantially all
domestic employees. Benefits were based on the employee’s
years of service, with some plans considering compensation
and certain other factors. The Company, effective from April
2004, and its domestic subsidiaries, effective from April 2005,
introduced an amended plan to establish a new formula for deter-
mining pension benefits including a “point-based benefits sys-
tem,” under which benefits are calculated based on accumulat-
ed points allocated to employees each year according to their
job classification and performance. If the termination is involun-
tary, the employee is usually entitled to greater payments than in
the case of voluntary termination.
The Company and its domestic subsidiaries fund a portion of
the obligations under these plans. The general funding policy is
to contribute amounts computed in accordance with actuarial
methods acceptable under Japanese tax law. The Company and
substantially all domestic subsidiaries had a contributory termi-
nation and retirement plan which was interrelated with the
Japanese government social welfare program and consisted of
a substitutional potion requiring employee and employer contri-
butions plus an additional portion established by the employers.
Periodic pension benefits required under the substitutional
portion were prescribed by the Japanese Ministry of Health,
Labour and Welfare, commence at age 65 and continue until
the death of the surviving spouse. Benefits under the additional
portion were usually paid in a lump sum at the earlier of termi-
nation or retirement although periodic payments were available
under certain conditions.
In January 2003, EITF reached a final consensus on Issue
03-2, “Accounting for the Transfer to the Japanese Government
of the Substitutional Portion of Employee Pension Fund
Liabilities.” EITF Issue 03-2 addresses accounting for a transfer
to the Japanese government of a substitutional portion of an
Employees’ Pension Fund plan.
The process of separating the substitutional portion from
the corporate portion occurs in four phases. EITF Issue 03-2
requires that the separation process should be accounted for
upon completion of the transfer to the government of the sub-
stitutional portion of the benefit obligation and related plan assets
as the culmination of a series of steps in a single settlement
transaction. Under the consensus reached, at the time the assets
are transferred to the government in an amount sufficient to
complete the separation process, the transaction is considered
to be complete and the elimination of the entire substitutional
portion of the benefit obligation would be accounted for as a
settlement at that time. The difference between the obligation
settled and the assets transferred to the government should be
accounted for as a subsidy from the government.
The Company received the Japanese government’s approval
of exemption from the obligation for benefit related to future
employee service on April 26, 2004 and past employee service
on May 1, 2005 with respect to the substitutional portion of its
termination and retirement benefit plans. The substitutional por-
tion of the benefit obligation and related plan assets were trans-
ferred to the government on September 29, 2005. The transfer
resulted in the Company recording a subsidy from the govern-
ment of ¥41,339 million representing the difference between
the accumulated benefit obligation of the substitutional portion
and the related plan assets. Additionally, the Company recorded
a reduction in net periodic benefit cost related to the derecog-
nition of previously accrued salary progression of ¥8,870 million
and a settlement loss of ¥38,294 million. The net amount of
derecognition of previously accrued salary progression and set-
tlement loss is allocated to cost of sales of ¥15,975 million, sell-
ing, general and administrative expenses of ¥8,635 million and
research and development expenses of ¥4,814 million.
On March 31, 2007, the Companies adopted the recogni-
tion and disclosure provisions of SFAS No. 158. SFAS No. 158
required the Companies to recognize the funded status (i.e., the
difference between the fair value of plan assets and the pro-
jected benefit obligations) of their pension plans in the March
31, 2007 consolidated balance sheet, with a corresponding
adjustment to accumulated other comprehensive income (loss)
as pension liability adjustments. Before adoption of SFAS No.
158, an additional minimum pension liability was recognized
based on a plan’s accumulated benefit obligation (projected ben-
efit obligation, less future compensation increase), pursuant to
SFAS No. 87. The effects of adopting the provisions of SFAS
No. 158 on the accompanying consolidated balance sheets at
March 31, 2007 are presented in Note 1. Summary of Significant
Accounting Policies.
9. Termination and Retirement Benefits