F6 - Pensions Flashcards
Under U.S. GAAP, the service cost component of a company’s net periodic pension cost is measured using the
Projected Benefit Obligation (PBO)
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?
Accumulated Benefit Obligation (ABO)
Net Periodic Pension Cost
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.
“I”nterest Cost
Beg PBO x Discount Rate
Expected “R”eturn on plan assets
Beg FV x Expected Rate
and Losses arise from two sources:
- 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
- Changes in actuarial assumptions (actuarial gains and losses)
Expected return on plan assets is calculated as:
Beg Fair Value of plan assets X Expected rate of return
The actual return on plan assets is calculated as:
Beg Fair Value of Plan Assets \+ Contributions - Benefits Paid \+Actual return on plan assets (Squeeze/Plug) = Ending Fair Value of Plan Assets
Corridor Approach Formula
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.
Corridor Approach Formula (another option)
Unrecognized net loss
Less: 10% of Greater of Beg. PBO/Plan Assets
= Excess
Excess/Average Remaining Service Life