F6 - Pensions

Question 1

Under U.S. GAAP, the service cost component of a company’s net periodic pension cost is measured using the

Answer 1

Projected Benefit Obligation (PBO)

Question 2

Under U.S. GAAP, what is the present value of all future retirement payments attributed by the pension benefit formula to employee services rendered prior to that date and based on past and current compensation levels only?

Answer 2

Accumulated Benefit Obligation (ABO)

Question 3

Net Periodic Pension Cost

Answer 3

SIR AGE
"S"ervice Cost
"I"nterest Cost
Expected "R"eturn on plan assets
"A"mortization of prior service cost
Amortization of ("G"ains)/losses
Amortization of "E"xisting Net Obligation or Net Asset.

Question 4

“I”nterest Cost

Answer 4

Beg PBO x Discount Rate

Question 5

Expected “R”eturn on plan assets

Answer 5

Beg FV x Expected Rate

Question 6

and Losses arise from two sources:

Answer 6

1. The difference between the expected and actual return on plan assets when the expected return on plan assets is used to calculate pension expense, and
2. Changes in actuarial assumptions (actuarial gains and losses)

Question 7

Expected return on plan assets is calculated as:

Answer 7

Beg Fair Value of plan assets X Expected rate of return

Question 8

The actual return on plan assets is calculated as:

Answer 8

Beg Fair Value of Plan Assets
\+ Contributions
- Benefits Paid
\+Actual return on plan assets (Squeeze/Plug) 
= Ending Fair Value of Plan Assets

Question 9

Corridor Approach Formula

Answer 9

Beg of Year Unrecognized gain or loss
- 10% of PBO or Market Related Value (greater)
= Excess
/Average remaining service life
= Amortization of unrecognized gain or loss.

Question 10

Corridor Approach Formula (another option)

Answer 10

Unrecognized net loss
Less: 10% of Greater of Beg. PBO/Plan Assets
= Excess

Excess/Average Remaining Service Life