Benefit Pension Plan

Question 1

what is pension asset and pension liability on the balance sheet?

Answer 1

• pension asset is when fair value of plan assets are greater than projected benefit obligation (PBO)
• pension liability is when fair value of plan assets are lower than projected benefit obligation.

Question 2

what accounts are debited and credited for unfunded status of pension plan?

Answer 2

debit OCI and credit liability. Also “pension cost” and “pension contribution” for a year will be recognized in OCI and pension liability account.

Question 3

what is funding status of a pension plan?

Answer 3

it is determined by comparing fair value of plan assets to the projected benefit obligation

Question 4

what is the difference b/w “expected return on assets” and “actual return on assets” when dealing with pensions? How to calculate “expected return on assets”?

Answer 4

expected return on assets is used to calculate pension expense. It is calculated by multiply “expected rate of return” by the fair value of plan assets. The difference b/w expected return on assets and actual return on assets is gain/loss. It is recognized in OCI and affects pension liability.

Question 5

can a company net overfunded and underfunded plans together?

Answer 5

No. Overfunded plans must be shown as non-current assets on the BS. Underfunded plans must be shown as current or non-current liabilities or both