Flashcards in Pension Expense, Reporting by Pension Plan Deck (15):
What components of Pension Expense occur each year?
The first 3 (Service cost, Interest Cost, Expected Return)
When do benefits vest?
If they are not contingent on continued employment
Where is the PBO and Fund Assets reported for a Pension Fund?
In the Footnotes
What is prior service cost?
An immediate increase in PBO from the retroactive application of an increase in benefits for services already rendered. Ex. Plan changes benefits to be 2.10% instead of 2% and is applied retroactively
What are the two types of gains and losses in Pensions?
1.) Changes in PBO due to estimate changes and experience changes
2.) The difference between expected and actual return.
Are Prior Service Costs and Pension Gains and Losses reported immediately in Pension Expense?
No, they are recognized on a delayed basis by gradually amortizing them as components 4 and 5
What are the two methods of amortizing Prior Service Costs in Pension Expense?
1.) Straight Line Method - Amortize PSC over the average remaining service period of employees covered
2.) Service Method - Amortize an equal amount of PSC per service-year, more amortization is recognized when employees are working. THIS IS THE PREFERRED METHOD
How are gains/losses treated in Pensions?
All gains and losses are merged into one amounts. Gains and Losses cancel each other
What are the 2 sources of gains in a Pension Fund?
1.) Decrease in PBO from increase in expected or actual turnover, decrease in life expectancy, etc.
2.) Actual Return is greater than expected return
What are the 2 sources of losses in a Pension Fund?
1.) Increase in PBO from decrease in discount rate, decrease in turnover, etc.
2.) Actual Return is less than expected return.
What are the two components of component 5 (Amortization of gain or loss) in Pension Expense?
1.) Determine amortization of net gain or loss at beginning of current year to include in pension expense. 2 methods of amortization (1)minimum (corridor) amortization (most popular) (2) SL
2.) Determining the net gain or loss at the end of the current year for amortization the following year.
Ending net gain or loss=beginning net gain or loss-amortization of beginning net gain or loss+-PBO gain or loss for the CY+-Asset gain or loss for current year
What is the final PBO formula?
PBO=SC to date+interest cost to date-benefits paid to date + PSC + net PBO gain or loss to date
How do we compute projected benefit obligation (PBO) at the balance sheet date?
Service cost to date + interest cost to date - benefits paid to date + prior service cost + or - net PBO gain or loss to date
What accounts are prior service cost and pension gains/losses recognized in immediately?
They are recognized in other comprehensive income and pension liability.