Reference no: EM133097356

Question - Essential Excellence Consulting Corp. (EECC) has been in business since 2016 and reports under IFRS. EECC began as a collaboration of independent consultants, and as time passed it began to hire permanent full-time employees to support its independent consultants. In 2020, EECC decided to implement a pension plan for its full-time employees. After several months of investigation into defined contribution and defined benefits plans, EECC decided to establish a contributory defined contribution plan.

The terms of the plan require the employee to decide the percentage of their salary that will be withheld by EECC and contributed to the plan, and EECC will match up to 5% of the employee's salary. For example, if an employee decides to contribute 4% of their salary to the pension plan, EECC will also contribute the equivalent amount (4% of their salary) to the pension plan. Employees are free to contribute more than 5% of their salary to the pension plan; however, EECC will match only the first 5%.

For 2021, the following information is available:

EECC has 16 full-time employees and 30 independent consultants.

75% of full-time employees participated in the pension plan.

The average salary for each full-time employee is $50,000, and for each consultant average annual earnings are $65,000.

Of those who signed up for the pension plan, 50% have agreed to contribute 5% of their salary, 25% have agreed to contribute 4% of their salary, and the remainder have agreed to contribute 8% of their salary.

Required -

a) Explain the difference between defined contribution plans and defined benefits plans. Discuss at least three characteristics of each type of plan.

b) Explain the difference between a contributory and non-contributory plan.

c) Calculate EECC's pension expense for the year ended December 31, 2021, and the total amount of contributions made to the pension plan in 2021.