Pensions Flashcards
Service cost - PV of benefits earned by employees in the current year.
Interest cost - increase PBO with the passage of time. Since the PV of any liability increase as it gets closer to due date.
= beg PBO X discount rate = interest cost
ABO-PV of benefits base on current and past compensation levels.
PBO- PV based on future salary. More conservative. Called DBO in IFRS.
Prior service cost- benefits based on past service granted for service before the starts of the plan or amendments to the plan. This cost is amortized over the average service life of employees.
Plan assets- stocks, bonds etc set aside to provide pension benefits. Increase by contributions and return on plan assets. Decrease when benefits are paid.
Plan assets reported at FV.
To solve for return of plan assets use BASE: and Squeeze!
Beg plan assets
\+ contributions
\+ actual ret { squeeze}
- benefits paid
----------------------------
End FV of plan assets!!!
Pension expense is also called
“Net periodic pension cost”
Calculated by: SIR AGE
S Current service cost
I Interest cost
R ( ret on plan assets)
A amort of prior service cost G gains and losses E amort of existing net obligation or net asset --------------------------------------- Net periodic penstion cost
Unamortized AGE is in AOCI
SIR is in expense
AOCI–unamortization of prior service cost, existing net obligation or bet asset and gains and losses
Expected ret on plan assets are used to smooth earnings:
If used, difference bet. Actual must be rev in OCI each period and amort to pension cost with gains and losses
Beg plan assets
X expected rate of ret on plan assets
——————————————-
Expected ret on plan assets
Gain and losses are from
The difference of expected and actual plan asset ret
And actuarial assumption changes
Gain and loss can be rec in IS in the period incurred or rec in OCI and amort to pension expense using corridor approach .
Corridor approach :
Beg unrecognized gain or loss
-(greater if 10% PBO or plan assets)
——————————————
Excess/ avg reminding service life = amort of unrecognized gain or loss
Funded status = FV plan assets-PBO
Funded status is amortized mover greater of 15 years or avg remaining job life of the employees.
Attribution period
The period of a worker’s beg service date to the fully vested benefit date.
Per capita claims
Unique to postretirement health care benefits.
