This paper has proposed that life insurance companies adopt an accrual basis of accounting for revenues and expenses as contrasted to the present modified cash basis. If the principles discussed above were followed, the published financial reports would provide a more meaningful "profit" figure for the period under consideration as well as other significant information for the use of stock analysts and investors. To round out the discussion, Exhibit A presents comparative Income Statements for the hypothetical New Life Insurance Company. This exhibit compares the income statement as it is presented today with the income statement that might appear if a full accrual program were in operation. These statements are based on some oversimplified assumptions as to type of policy, duration of sales activity, and age composition of the policyholders. Despite the simplicity, the statements significantly demonstrate the differences and highlight the magnitude of the differences over time.
Historically, corporate pension plans in the U.S. are largely a product of the twentieth century. Their development and growth have been influenced by a number of factors. The greatest stimulation probably came from the Revenue Act of 1942 and the Inland Steel Decision of 1949. The 1942 Revenue Act provided the first major definitive legislation on corporate pension trusts, providing tax benefits to both employer and employee. The Inland Steel decision opened the way for union bargaining on pension benefits. By and large, the very early industrial plans recognized pension costs on a pay-as-you-go or cash disbursement basis. This was attributable to the fact that most of the early plans did not guarantee life-time benefits. Rather, continued pension payments were predicated upon the financial ability of the company to maintain such payments. This increasing financial drain influenced a gradual change from a pay-as-you-go financial program to one based upon actuarial procedures. It was also about this time that the insurance companies entered the field.