Deferred Comp Flashcards
DB accounting
PV of amount needed at end of period to fund benefits in retirement.
2 amounts for reporting
1) Annual pension expense - PV of cost of benefits earned during the year +/- adjustments.
2) Projected benefit obligation (PBO) - actuarial PV of unpaid future benefits earned by balance sheet date.
Actuarial PV
Future benefits discounted to PV using assumed ROR on plan investments, estimated employee turnover, life expectancy and future salaries.
Net periodic pension expense
Income Statement
DB Formula
years service
final or highest salary
age at retirement
PBO
PV of future benefits
Plan assets at FV = sum of contributions + sum of actual earnings - benefits paid
Pension expense
component of income from continuing operations
pension liability
PBO - fair value plan assets
both reported in footnotes of balance sheet
accumulated benefit obligation
PV of future payments for services render prior that date only
Full eligibility for postretirement healthcare benefits
Date at which the employee has served the required number of years to attain level of benefits employee is expected to obtain.
May not be full benefits - don’t be thrown by info added to question
Affects of healthcare cost trend changes Postretirement healthcare benefits
Already factored in by per capita claims. Historical, age, health plus more. Unique to healthcare.
Postretirement liability =
APBO - plan assets @ fair value
Prior service cost
Increases SC, no income impact. Immediately recognized as pension liability and recorded on OCI. Amortized gradually to pension expense.
Pension gains and losses
Immediately recognized as pension liability and recorded on OCI. Amortized gradually to pension expense.
Amortization - service method
Liability divided between total years, then allocated by person by year until exhausted.
Neither method affects PBO, and recognition of initial PSC increases PBO.
PBO =
SC + i - paid benefits +/- Return
Return - PBO gain/loss
