Module 9.3: Defined Benefit Plans, Part 1—Periodic Cost

Question 1

total periodic pension cost (TPPC)

Answer 1

= employer contributions − (ending funded status − beginning funded status)

Question 2

periodic pension cost

Answer 2

is the employer’s contributions adjusted for changes in funded status

Question 3

total periodic pension cost (TPPC) alternative

Answer 3

= current service cost + interest cost − actual return on plan assets +/– actuarial losses/gains due to changes in assumptions affecting PBO + prior service cost

Question 4

Current service cost

Answer 4

increase in the PBO that is the result of the employees working one more period

Question 5

Interest cost

Answer 5

increase in the PBO due to the passage of time

Question 6

Interest cost under U.S. GAAP =

Answer 6

(beginning PBO + prior service cost) × discount rate

Question 7

Net interest income or expense under IFRS =

Answer 7

(beginning funded status − prior service cost) × discount rate

Question 8

Expected return on plan assets.

Answer 8

Under IFRS, same as the discount rate used for computation of PBO

Question 9

Actuarial gains and losses

Answer 9

• changes in actuarial assumptions
• difference between actual and expected return on plan assets.

Question 10

Corridor Approach (U.S. GAAP only)

Answer 10

once the beginning balance of actuarial gains and losses exceed 10% of the greater of the beginning PBO or plan assets, amortization is required

Question 11

Past (prior) service costs

Answer 11

Under IFRS, recognized in periodic pension cost in P&L immediately (i.e., they are expensed immediately and not amortized).

Under U.S. GAAP, the amortization of actuarial gains and losses and the amortization of past service costs reduces the volatility of periodic pension cost in P&L.