Coca-Cola Company versus PepsiCo, Inc - Essay Example

Download file to see previous pages In 2009, the companies work under the 401k pension plan which provides insurance advantage on the medical requirements of the employees. In Coca-Cola the contributory plan is done by both the employer and the employees where the employer enjoys the benefit of taxation for their employees. The pension plan of PepsiCo is based on the willingness of the employees as the benefits are availed by both the full-time and international employees. The rates used by Coca-Cola and PepsiCo for calculating the pension amounts are rate of return on assets, rate of compensation, and rate of discount. For the year 2008, the expense discount rate and the rate of return on planned assets for Coca-Cola was 5.8% and 7.75%. The medical benefits for the retiree were calculated based on the available rates. PepsiCo had a discount rate of 5.7% on all US beneficiaries and 5.2% on foreign workers. The expected rate of return for PepsiCo in 2008 was 7.7%. Retirement rewards calculated were often based on the compensation rate for employees. Recent events in corporate finance have depicted the importance of efficient administration. The need to fund corporate pension plans have made many executives to offers offer defined constitution plans as because of the recent changes in IFRS. Whereas Coca-Cola have rejected such approach and have preferred the plan of cash balance plan design as it offered risk-free benefits to the employees and made the employees secured. Coca-Cola was a part of multi-employer pension plans of US, but from 2012 the company opts to change the accounting methodology for determining the market related value of assets for the defined benefit pension plans. Coca-Cola sponsors to the pension plans covering all US employees and has made necessary assumptions to determine the pension expense and other related obligations. As per the assumption the discount rates would be related to the present value liabilities and the expected long-term rate would relate to planned assets. The company decided to periodically revise asset allocation so as to improve returns and manage risks. PepsiCo is one of those major employers who are still planning to offer their new employees a final salary pension. In 2012, PepsiCo decided to decrease the fair value of pension so as to reduce the future employee benefit costs. The company made certain changes in their US Pension plans, which stated that employees earning benefit under the pension plans as stated in IFRS, were not eligible for the company matching contributions on the 401k contributions. The annual pensions is to be calculated based on 4 components, i.e. the value of benefits earned by employees during their working hours, the increase in liability due to time , other gains and losses and the expected return on assets which was based on pension plan investment strategy and the long-term rates of return by asset class. These schemes were essential to plan a secure retirement for the employees and to meet the future expectation of the management. Answer 2. The Coca-Cola Company In 2012 the company’s total pension expense related to defined benefit plans were $251million. The company’s primary US plan in 2012 represented 59% and 64% of the Company’s consolidated pension benefit obligations and pension assets. The pension expense is expected to decrease by $60 million in 2013 by the management because of expected $640million of contributions to be made by the ...Download file to see next pagesRead More