FAR 14 - PENSIONS Flashcards
How do you compute actual return on plan assets?
actual return on plan assets = increase in plan assets (after contributions and benefits paid)
step 1. Beg FV of plan assets + contributions - benefits paid = calculated ending balance of plan assets
step 2. actual ending balance of plan assets - calculated ending balance of plan assets = actual return on plan assets
Service is the increase in…..
service cost is the increase the projected benefit obligation that results from services performed by the employees during the current year and represents the benefits earned.
Expected return on plan assets is calculated by ….
Expected return on plan assets is calculated by multiplying the beg balance in plan assets by the elected rate of return
Interest cost is calculated by…
Interest cost is calculated by multiplying the beginning balance of the projected benefit obligation by the interest rate
**interest cost is added to pension expense
The increase or decrease in the projected benefit obligation resulting from the initiation of, or amendment to, a plan results in…
prior service cost
VBO (vested benefit obligation) represents the value of benefits employees would be entitled to if…
if they terminated employment as of the balance sheet date. It is the smallest potential pension liability.
The ABO (accumulated benefit obligation) represents the…
value of benefits employees have earned to date, including some not yet vested, assuming the employees remain with the company until the average retirement age. The ABO liability will be greater than the VBO since it includes the value of benefits that are both vested and unvested.
The PBO represents the…
value of benefits employees have earned to date, including both vested and unvested benefits under the assumption that employees will remain with the company until the average retirement age.
**It differs from the ABO in that it takes into account anticipated future pay increases and, in a pay-related plan, will be higher than the ABO and will represent the highest potential pension liability.
The discount rate used to determine the interest component of the PBO is based on…
the time value of money
how do you calculate pension liability?
PBO - fair value of plan assets
What is accumulated benefit obligation?
Accumulated benefit obligation is the present value of all future retirement payments that the employee is already entitled to based on services rendered prior to that date
**PBO is what they SHOULD get under assumptions. ABO is what they WILL get under what they’ve actually earned
Plan Assets =
beg plan assets
+ Contributions
- Benefits Paid
+/- Actual Return
= Ending plan assets. net assets available for benefits
