Ricoh 2006 Annual Report Download - page 45

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ANNUAL REPORT 2006
To Our Shareholders and
Customers
General Information
by Business Area Ricoh's Core Values Solutions Environmental Financial Section
The Company and certain of its subsidiaries have various contributory and
noncontributory em ployees’ pension fund plans in trust covering substantially
all of their employees. Under the plans, employees are entitled to lump-sum
payments at the tim e of termination or retirem ent, or to pension paym ents.
Contributions to above pension plans have been m ade to provide future pension
payments in conformity with an actuarial calculation determined by the
current basic rate of pay.
Under the term s of the dom estic em ployee’s pension fund ( “EPF”) plan, the
government mandated welfare pension insurance benefit was included and
comm ingled with the prim ary corporate benefit provided by Ricoh. These
contributory and non contributory plans were funded in conform ity with
governmental regulations which basically require an em ployer 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 governm ent ( sim ilar 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 arrangem ent. 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 perm its an
em ployer to elect to transfer the entire substitutional portion benefit obligation
from the EPF to the government together with a specified am ount of plan assets
pursuant to a government formula. After such transfer, the em ployer would be
required to m ake periodic contributions to JPI, and the Japanese governm ent
would be responsible for all benefit paym ents. 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 exem ption 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 governm ent approval of
exemption from the obligation for benefits related to past em ployee 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 Governm ent 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 governm ent 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 deem ed
“settled” with the Japanese government and the assets required to be transferred
to the government. The subsidy that Ricoh recognized am ounted to ¥56,972
million. In addition, Ricoh recognized as a settlem ent loss equal to the amount
calculated as the ratio of the obligation settled to the total EPF obligation
imm ediately prior to settlement, both of which exclude the effect of future
salary progression relating to the substitutional portion, times the net
unrecognized gain/loss imm ediately prior to settlement, which amounted to
¥48,657 m illion. 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 Com pany
liquidated this plan and recorded a settlem ent loss of ¥5,958 m illion which was
included in selling, general and administrative expenses in its fiscal 2004
consolidated statement of incom e.
The changes in the benefit obligation and plan assets of the pension plans for
the years ended March 31, 2005 and 2006 are as follows:
1 1 . PENSION AND RETIREMENT ALLOWANCE PLANS
Thousands of
Millions of Yen U.S. Dollars
2005 2006 2006
Change in benefit obligation:
Benefit obligation at beginning of year ¥313,426 ¥343,623 $2,936,949
Service cost 14,762 14,691 125,564
Interest cost 9,218 10,192 87,111
Plan participants’ contributions 457 517 4,419
Amendments ( 91) – –
Actuarial loss 2,697 10,437 89,205
Settlement ( 4,316) (654) (5,590)
Benefits paid ( 19,818) (14,408) (123,145)
Foreign exchange im pact 3,572 4,415 37,735
Benefit obligation assum ed in connection with business acquisition 23,716 – –
Benefit obligation at end of year ¥343,623 ¥368,813 $3,152,248