Pensions & Postemployment Benefits

Question 1

component of the changes in the net assets available for benefits of a defined benefit pension plan trust

Answer 1

1. Benefits paid to participants
   2 .Contributions from the employer and participants
   3 .The net change in fair value of each significant class of investments

Question 2

employer’s obligation for postretirement health benefits should be fully accrued by ?

Answer 2

the date Employee is fully eligible for benefits

Question 3

The following disclosures are required of companies with defined-benefit pension plans:

Answer 3

1. The components of period pension costs
2. The amount of unrecognized prior service cost
3. detailed description of the plan including employee groups covered.

• description of the company’s funding policies and
• types of assets held
• amount of net periodic pension cost for the period
• the fair value of plan assets.

a description of the plan, the amount of pension expense by component, the weighted-average discount rate, and the estimate of future contributions for the next fiscal period, not the next five years.

Question 4

what happens when there’s an amendment to defined benefit pension plan. changing retirement age from 65 to 72?

Answer 4

The effects of an amendment to a defined benefit pension plan will result in an adjustment to prior service cost. Since the amendment delays the retirement age, the company will have a longer period to accumulate resources to pay benefits and will ultimately pay benefits for a shorter period of time. As a result, the change will decrease prior service cost, which will decrease pension expense as it is amortized.

Question 5

The funded status of a defined benefit pension plan for a company should be reported in

Answer 5

stmt of financial position aka balance sheet

The funded status is the difference between the ending projected benefit obligation and the fair value of plan assets.

This difference gives rise to either a net liability or a net asset either of which are presented on the statement of financial position, or the Balance Sheet.

If the plan is overfunded, a noncurrent asset is recorded on the balance sheet. If the plan is underfunded, a current liability, a noncurrent liability, or both are reported on the balance sheet.

Question 6

Vested benefit obligation (VBO)

Answer 6

represents the value of benefits employees would be entitled to if they terminated employment as of the balance sheet date. It is the smallest potential pension liability

Question 7

Accumulated benefit obligation (ABO)

Answer 7

The ABO represents the value of benefits employees have earned to date, including some not yet vested, assuming the employees remain with the company until the average retirement age. The ABO will be greater than the VBO since it includes the value of benefits that are both vested and unvested.

present value of all future retirement payments attributed by the pension benefit formula to employee services rendered prior to that date only

Question 8

Projected benefit obligation (PBO)

Answer 8

PBO represents the value of benefits employees have earned to date, including both vested and unvested benefits under the assumption that employees will remain with the company until the average retirement age. It differs from the ABO in that it takes into account anticipated future pay increases and, in a pay-related plan, will be higher than the ABO and will represent the highest potential pension liability.

Question 9

Unfunded accrued pension cost represents

Answer 9

the cumulative amount by which pension cost exceeds the amounts contributed to the plan.

Question 10

Service cost is

Answer 10

the increase in the projected benefit obligation that results from services performed by the employees during the current year and represents the benefits earned.

Question 11

how to find ending PBO

Answer 11

beg PBO
\+ interest cost
\+ service cost 
- distribution
= end PBO

Question 12

unique to postretirement health-care benefits

Answer 12

Per capita claims

Question 13

Which of the following is an actuarial technique that is used in IFRS to ac­count for defined benefit pension plans?

Answer 13

While GAAP allows the use of various methods, IFRS requires that the PBO and service cost be determined using the projected-unit-credit method.

Question 14

The calculation for PBO is as follows

Answer 14

Beginning of year PBO

+ Service cost

+ Interest cost

± Prior service cost (PSC) or credit (from changes to plan in current year in full)

± Actuarial gain or loss (from changes in actuarial assumptions)

– Benefits paid

End of year PBO

Question 15

actuarial technique used in IFRS to ac­count for defined benefit pension plans

Answer 15

projected-unit-credit method

Question 16

Interest cost included in the net pension cost recognized by an employer sponsoring a defined benefit pension plan represents the

Answer 16

represents the increase in the PBO due to the passage of time

Question 17

required defined benefit pension plan disclosure

Answer 17

1. description of the plan
2. the amount of pension expense by component
3. the weighted-average discount rate
4. the estimate of future contributions for the next fiscal period

Question 18

plan asset calculation

Answer 18

beg plan asset
+ contribution ( or - distribution)
+/- actual return
= end plan asset

Question 19

interest cost

Answer 19

beg PBO * discount rate

Question 20

expected return on asset

Answer 20

beg balance in plan asset s * expected rate of return