Ricoh 2004 Annual Report Download - page 44

11. PENSION AND RETIREMENT ALLOWANCE PLANS
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 are
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 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 ($547,808 thousand). 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 ($467,856 thousand). These gain and loss were included in
operating income.
In addition to 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 ($57,288 thousand) 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, 2003 and 2004 are as follows:
43
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Amendments
Actuarial loss (benefit)
Settlement
Benefits paid
Foreign exchange impact
Benefit obligation at end of year
Thousands of
U.S. dollars
2004
Millions of yen
2004
¥ 522,275
15,694
12,719
171
(53,563)
(7,420)
(164,522)
(15,378)
(1,972)
¥ 308,004
2003
¥ 452,562
16,943
14,292
1,105
(10,924)
64,852
(2,009)
(13,197)
(1,349)
¥ 522,275
$ 5,021,875
150,904
122,298
1,644
(515,029)
(71,346)
(1,581,943)
(147,865)
(18,961)
$ 2,961,577