PBO Formulas

Question 1

Ending Project Benefit Obligation Formula

Answer 1

Beg PBO
\+ Service Cost
\+ Interest Cost
\+ Prior Service cost from current period amendments
\+ Actuarial losses incurred in the current period
- actuarial gains 
- benefits paid to retirees 
= ending PBO

Question 2

Ending FV of plan assets

Answer 2

Beg FV of plan assets 
\+ contributions 
\+ actual return on plan assets
- Benefit payment 
= Ending FV of plan assets

Question 3

Net periodic pension cost components

Answer 3

SIR AGE
Service Cost
Interest cost
< Return on plan assets>
Amortization of prior service cost 
 and losses
Amortization of Existing unrecognized net obligation or unrealized net asset at implementation

Question 4

How are the components of net periodic expense reported on the financial statements

Answer 4

Service cost = operating expense

other components- presented on the income statement separately

Question 5

How are unrecognized gains and losses amortized to net periodic pension cost under US GAAP?

Answer 5

Corridor approach

Unrecognized gain or loss 
GREATER < 10% of PBO OR Market related value> 
= Excess 
/ Average remaining service life 
= amortization of unrecognized gain/loss

Question 6

How do you calculate the interest cost?

Answer 6

Bg of period PBO x Discount rate (settlement rate)

Question 7

How do you calculate expected return

Answer 7

Beg of FV of plan assets x expected rate of return on plan assets
= expected return on plan assets

Question 8

Amortization of unrecognized prior service costs

Answer 8

Beginning of unrecognized prior service cost / average remaining service life

Question 9

Amortization of existing net obligation or net asset at implementation

Answer 9

Projected benefit obligation

= initial unfunded obligation
/15 years or average employee job life (GREATER)
= minimum amortization