This excerpt taken from the TM 20-F filed Jun 25, 2007.
Transfer to the government of the Substitutional Portion of the Employee Pension Fund Liabilities -
The parent company and most subsidiaries in Japan had maintained employees pension funds (EPFs) pursuant to the Japanese Welfare Pension Insurance Law (JWPIL). The EPF consisted of two tiers, a Substitutional Portion, in which the EPF, in lieu of the governments social insurance program, collected contributions, funded them and paid benefits to the employees with respect to the pay-related portion of the old-age pension benefits prescribed by JWPIL, and a Corporate Portion which was established at the discretion of each employer.
In June 2001, the CDBPPL was enacted and allowed any EPF to terminate its operation relating to the Substitutional Portion that in the past an EPF had operated and managed in lieu of the government, subject to approval from the Japanese Minister of Health, Labour and Welfare. In September 2003, Toyota Motor Pension Fund, the parent companys EPF under JWPIL, obtained the approval from the Minister for the exemption from benefit payments related to employee services of the Substitutional Portion. In January 2004, Toyota Motor Pension Fund completed the transfer of the plan assets attributable to the Substitutional Portion to the government. In addition, during the years ended March 31, 2004 and 2005, subsidiaries in Japan that had EPFs under JWPIL also completed the transfer of the plan assets attributable to the Substitutional Portion in compliance with the same procedures followed by the parent company.
In accordance with the consensus on EITF Issue No. 03-2, Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities (EITF 03-2), Toyota accounted the entire separation process, upon completion of transfer of the plan assets attributable to the Substitutional Portion to the government, as a single settlement transaction. During the year ended March 31, 2005, Toyota recognized a settlement loss of ¥96,066 million as part of net periodic pension cost which is the proportionate amount of the net unrecognized loss immediately prior to the separation related to the entire EPFs under JWPIL, and which is determined based on the proportion of the projected benefit obligation settled to the total projected benefit obligation immediately prior to the separation. Toyota also recognized as a reduction of net periodic pension cost totaling ¥21,722 million for the year ended March 31, 2005, which resulted in a gain attributed to the derecognition of previously accrued salary progression. In addition, Toyota recognized a gain of ¥121,553 million for the year ended March 31, 2005, which represented the difference between the obligation settled and the assets transferred to the government. These gains and loss are reflected in the consolidated statement of income for the year ended March 31, 2005 as follows:
All these gains and loss are non-cash gains and loss, and reported on a net basis in Pension and severance costs, less payments in the consolidated statement of cash flows for the year ended March 31, 2005.
During the years ended March 31, 2006 and 2007, no significant gains or losses relating to the transfer to the government of the Substitutional Portion of the EPF liabilities were recognized.
TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)