F7 Flashcards
Defined Contribution Plan
ER contributions determined by a formula
401K
Defined Benefit Plan
EE benefits determined by a formula
Pension
For pensions do pension expense = amount funded (paid) to the plan?
No! Not typically
Noncontributory
EEs are not required to contribute to the plan
Contributory
EEs required to contribute to the plan
Funded pension plan
Money is already at the trust waiting to be distributed to EEs of the pension plan
Unfunded pension plan
Promise from ER to pay pension benefits, but just a promise only
Overfunded
More money in the plan than required (plan assets exceed plan liabilities)
PBO
Projected Benefit Oblgation (uses future compensation levels - guess)
ABO
Accumulated Benefit Obligation (uses past / current compensation levels)
ABO vs PBO
ABO uses past / current salary levels and PBO uses future (guess) salary levels
DBO
Defined benefit obligation
IFRS
PBO equivalent for IFRS
IFRS equivalent to PBO
DBO
Vesting for pension plans - how?
Reach retirement age and / or meet unique special requirements
If a person leaves to work for another employer after vesting - are they still vested!
Yes, retired or not, they will still be vested
Pension Service Cost
Present value of all pension benefits earned by company EEs in the current year
Increases the PBO
Interest cost for pension plans increases what?
PBO because it raises the value of the obligation closer to the maturity value
What does pension service cost increase?
The PBO
Prior service costs
Pension
EEs grandfathered in for service previously rendered or
Subsequent plan amendment reflecting new or increased benefits applying to service already provided
Actuarial gains and losses
Gains or losses that occur due to actuarial adjustments
Benefit payments
PBO (down) Plan assets (down)
(Payout to retired and working EEs)
Is service cost a pension cost?
Well no - it’s presented separately in the compensation
Pension costs
I RAGE
Interest cost (Return on Plan Assets) Amortization of Prior Service Cost (Gains) and Losses amortization of Existing net obligation or net asset
AGE
AOCI Pension costs unamortized
Amortization of prior service cost
(Gains) and losses
Existing net obligation or net asset