Final answer:
Dividends from stock investments by a pension plan are recorded as investment revenue on an accrual basis by the employer, reflecting when the income is earned regardless of when the cash is received.
Step-by-step explanation:
Dividends from stock investments by a pension plan are reported by the employer as investment revenue on an accrual basis. This means that the income is recorded when it is earned, rather than when the cash is received. This reporting practice aligns with the generally accepted accounting principles (GAAP), which prioritize the matching principle - expenses are matched with revenues in the period in which the transaction occurs.
Pension plans are a component of employee compensation and broadly come in two types: defined benefit plans and defined contribution plans. With defined contribution plans, such as 401(k)s and 403(b)s, employers contribute a fixed amount to the worker's retirement account, which is invested in various financial instruments. These contributions are often matched by employee contributions and provide tax-deferred growth. Inflation risks that affect traditional pensioners are mitigated by real rates of return generated through these investments.