Section 14 - Pensions and Post Employment Benefits Flashcards Preview

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Flashcards in Section 14 - Pensions and Post Employment Benefits Deck (13):

What is a Defined Contribution Plan?

When the employer set aside specific amounts during the time of service.

401K is a Defined Contribution Plan

Pension Expense


What is a Defined Benefit Plan

Employer guarantees certain benefits to be paid to retired employees and is responsible for setting aside sufficient amounts to fullfill these promises.


What is Projected Benefit Obligation (PBO)?

Reflects FUTURE compensation levels


What is Accumulated Benefit Obligation (ABO)?

PV of Pension Benefits accrued based on PRESENT compensation levels


How do you calculate Pension Expense?

Pension Expense Formula


+ Service cost
+- Prior Service Cost (PSC) Amortization
+ Interest cost
- (actual Return on plan assets)
+ Deferred gain (unrecognized pension gain/ -loss)
-(Excess amortization of deferred gain/ +loss)
+- Amortization of Existing Net Obligation (+) or Net Asset (-) at implementation


Does Service Cost increase or decrease PBO?

INCREASE by 1 year


How do you calculate Prior Service Cost (PSC) Amortization?

Beginning PSC/ Average service life or expected future years of service amortization method


How do you calculate Interest Cost?

Beginning PBO x Discount Rate (Settlement Rate)

Interest Cost is the change in PBO resulting from passage of time (INCREASE)


How do you calculate Actual Return on Plan Assets?

Two ways

Ending plan asset -Beginning plan asset - Contribution Made + Benefits Paid


Beginning FV of Plan assets X Actual Return Rate

This is the actual earnings of pension plan during the period.


How do you calculate Deferred Gain (unrecognized pension gain/ - loss)?

Return on Plan asset - beginning PA x Expected rate of return

When the actual investment results differ from long-run expected returns.


How do you calculate Excess Amortization of deferred gain/ +loss)?

Minimum amortization calcualtion:

-Deferred gain and loss at beginning of each year
-Minus 10% of Plan Assets or beg PBO, whichever is higher
-Excess / Average Service Life

Unrecognized gains or losses included in OCI (B/S)


How do you calculate "the change in PBO"?

Beginning of the year PBO
+ Service Cost
+ Interest Cost
+- Prior Service Cost
+- Actuarial gain or loss
- Benefits paid out
=End of year PBO

**amortization of PSC, gains/losses and transition amounts don't affect the PBO in the current year, however, they do affect pension expense/cost for the year


Under IFRS, how is the cumulative cost for Defined Benefits Plan calculated?

Calculated using the Projected Unit Credit Method (an actuarial technique).