Employee Benefits Financial Reporting Coca Cola Company PDF

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Absuelo, Melch Cathleen M.

Bales, Ornica

Bannister, Andrea A.

Fulgencio, Glyzza Queen A.

Lofranco, Kimberly G.

Uriarte, Christine Cola-Cola Company’s Pension Report

It is common for employees to expect rewards for their rendered services. It is through such rewards that the employees are motivated to work. In the same manner, employer would want a motivated workforce for a better entity performance. Indeed, employee benefits offer a relevant interplay between the economic relationship of the employer and the employee. One particular employee benefits are the pension plans which basically require the employer to make contributions in a fund that is set aside for the future benefit of the employee. In the Philippines, PAS 19 prescribes the rules in accounting for such entity transactions. Complexity may be experienced in dealing with it especially when the use of actuarial assumptions is included. Nevertheless, awareness and understanding of employee benefits are significant as the inevitable encounter of employment comes whether being an employer or an employee. The following sections attempt to undertake measures in attaining awareness and understanding of the Coca Cola Company’s Pension Plans. It presents the kind of pension plan that the company is using together with the corresponding data in connection to such pension plans. Furthermore, it tries to provide information on how the company arrive with such plans and its relation to the company’s anticipated results. a. What kind of pension plan does the COCA-COLA Company provide its employees? Coca-Cola Company has established Supplemental Benefit Plan for its employees that was effective January 1, 1984. The Plan is an unfunded supplemental retirement plan for eligible employees and their beneficiaries as described herein. The plan was amended and renamed as Qualified Pension Plan on January 1, 2010. Beginning the amendment the plan was changed to a “Cash Balance”. The amounts was credited to each eligible participant’s cash balance account based on the participant’s compensation and other factors. Amounts representing interest are also credited to the cash balance account

The Coca-Cola Company offers health, dental, and vision coverage. The Coca-Cola Company also provides group life insurance, short-term disability insurance for accidents or illness, long-term disability insurance, and death benefits, which cover certain causes of death. Employer-financed retirement plans help to guarantee a steady source of money later in life. The Coca-Cola Company offers defined benefit pension plans and defined contribution pension plans. With a defined benefit pension plan, workers are given predetermined compensation upon retirement. With a defined contribution pension plan, businesses help employees save and invest for retirement. b. What was the entity’s pension expense for the comparative year (determine the years)? The Company contributed $22 million to the pension trusts during the six months ended June 28, 2019. The significant declines in the equity markets and in the valuation of other assets precipitated by the COVID-19 pandemic negatively affected the values of our pension plan assets during the quarter ended March 27, 2020. While the equity markets and the valuation of other assets have recovered somewhat during the quarter ended June 26, 2020, the fair values of our pension plan assets remain lower than pre-pandemic levels. During the six months ended June 26, 2020, the Company contributed $8 million to the pension trusts. If pension plan asset values do not continue to recover to pre-pandemic levels or deteriorate again as a result of uncertainty regarding the timing and pace of economic recovery from the COVID-19 pandemic, we may incur increased pension expense in future periods. They anticipate making additional contributions of approximately $18 million during the remainder of 2020.

c. What is the impact of the entity's pension plan for the latest year on its financial statements?

The picture above shows the impact of the entity’s pension plan for the latest threemonth period ended June 26, 2020. Results indicate pension benefit plan of Coca -Cola has a net periodic benefit income of $16M. d. What information does the entity provide on the target allocation of its pension assets? How do the allocations relate to the expected returns on these assets? A vital way of ensuring that pensioners can have a better quality of life is by establishing investment funds from which benefits can be derived from. Making sure that enough funds are available to fulfil the pension liabilities when they arise is a basic principle in investing. Understanding the nature of the liabilities and the mix of assets that best enable them to be met is the challenge posed by pension funds (Scott, 1991). To actively manage the assets of their pension plans, the Coca-Cola Company utilized the services of investment managers. With each investment manager, the company have established asset allocation targets and investment guidelines. Given the long-term time frame for fulfilling the obligations of the plan, the entity’s asset allocation targets promote optimal expected return and volatility characteristics. The review of the expected return and risk characteristics of each asset class including the correlation of returns among asset classes were the basis for the selection of the targeted asset allocation for plant assets.

Last 2013, the entity revised its target allocation mix to 42 percent equity investments, 30 percent fixed-income investments and 28 percent alternative investments. The previous targets, according to the company's previous annual report, were: 51% equity, 31% fixed income and 18% alternatives (Kozlowski, 2013). The target allocation of 42 percent equity investments is composed of 60 percent global equities, 16 percent emerging market equities and 24 percent domestic small- and mid-cap equities. Security selection as well as country and sector diversification helps achieve optimal returns through investments in global. Investments in the common stock of Coca-Cola Company accounted for approximately 5 percent of its global equities allocation and approximately 2 percent of total plan assets. The 30 percent fixed-income investments target allocation consist of 33 percent longduration bonds and 67 percent with multi-strategy alternative credit managers. Long-duration bonds provide a stable rate of return through investments in high-quality publicly traded debt securities. Multi-strategy alternative credit managers invest in a combination of high-yield bonds, bank loans, structured credit and emerging market debt. These investments are in lower-rated and non-rated debt securities, which generally produce higher returns compared to long-duration bonds and also help to diversify the company’s overall fixed-income portfolio. In addition to equity investments and fixed-income investments, Coca-Cola also announced a target allocation of 28 percent in alternative investments. These alternative investments include hedge funds, reinsurance, private equity limited partnerships, leveraged buyout funds, international venture capital partnerships and real estate. The objective of investing in alternative investments is to provide a higher rate of return than that available from publicly traded equity securities. These investments are inherently illiquid and require a long-term perspective in evaluating investment performance (Coca-Cola Company, 2019).

REFERENCES Scott, P. G. (1991). Strategic Asset Allocation for Pension Funds. The Journal of Finance, 3, 33-49. Kozlowski, R. (2013). Coca-cola puts $1.1 billion in pension funds. Retrieved September 13,

2020,

from

https://www.pionline.com/article/20130227/ONLINE/130229887/coca-cola-puts- 1-1billion-in-pension-funds Securities and Exchange Commission. (2010). The Cocal-Cola company supplemental pension plan.

Retrieved

September

12,

2020

from

https://www.sec.gov/Archives/edgar/data/21344/000104746910001476/a2195739zex10_106.htm The Coca-Cola Company. (2019). Annual report pursuant to section 13 and 15 (d). Investors.

Retrieved

September

13,

2020,

from

https://investors.coca-

colacompany.com/filings-reports/annual-filings-10-k/xbrl_doc_only/2506...