Pension Flashcards
Pension expense/pension cost
Dr/Cr PBO
Dr/Cr OCI - dEnt
➕service cost (given) \+/-prior svc cost PSC amortz ➕int cost ➖actual return in PA ➕deferred gain ➖excess amortz of deferred gain-/-loss \+/-amortz of existing Net Oblig or net A implementation =Pension Expense / Cost/ Accrued Liab/ Ending PBO
➕Service cost
- Actuarial PV of benefits attributed to svc perf during period
- ⬆️ in PBO in 1 yr
+/- Prior service cost PSC amortz
- costs assoc w svc yrs before plan amended
- calc= beg psc/ ave svc life (test). Or remaining svc life of ee expect d to receiv benefits
Test:
Total hrs/ #of employees
4 ees total of 20 yrs / 4 ees = 5
Cost of $100,000/ 5 = $20,000
➕ Interest cost
- ⬆️in PBO due to passsage of time
2. calc= beg PBO x disct rate (setlmt rate: rate at which plan’s oblig cb settld)
- VBO
- ABO: faithful
- PBO: relevant
VBO:1. vested and 2. not conting to cont employmt
Accumulated BO:
1. at curr. wages, 2. svc to date if ee cont emplymt till retirmt age or prior to tt date of retirement
Projected BO:
1. at salaries to be rcvd
GAAP: benefits-yrs-of-svc
IFRS: projected-unit-credit-method
Actual return on plan assets PA: Beg PA Dr. Contributions Cr. Benefits paid Dr. Actual return. Ending PA
Beg PA x actual return
- actual earnings of pension plan during period
- calc= end PA - beg PA - contribution made + benefits paid OR
- calc= beg FV of PA x actual return
(not changes in actuarial pv)
➕deferred gain (unrecog pension +gain/-loss) due to ST var from LT
- when actual investmt results differ from LR expected returns
- calc: return on PA - (beg PA x expected rate of return)
- diff accumulated to OCI
- actual return>, diff is added back to pension exp
- actual return
➖Excess amortz of Deferred -gain/+loss
- Unrecog g/l included in AOCI
- amortz of deferrals when gets too large (corridor)
Beg of period, the accumulated deferred g/l is comp to 10% of greater of beg bal in PBO or FV of PA
Beg def amt - 10% (higher of beg PBO or Beg PA) / ave svc life
If accumulated def g/ is larger than the greater of those 2, the excess is amortz
+/- amortz of existing net obligation or Net Asset at implementation
- if PBO > FV of PA, then amortz of net oblig will ⬆️ pension exp/cost
- if FV > PBO, then Net Asset amort will ⬇️ pension exp/cost. This amt sb amortz iver larger of 15 yrs or the ave remaining svc life
Funded status
Ending PBO - ending FV of PA at FYEnd
If overfunded: B/S non-current A
If underfunded: non-curr or curr L
Thus, funding status MAY NOT be netted
Any g/l not already recog as pension exp, are recog in AOCI net of tax
Pension presentation je to fund plan:
Dr pension exp
Dr p/p pension cost or
Cr accrued pension cost liability
Cr. Cash (overfunding)
To account change in PBO:
Beg of PBO:
Beg of PBO
+ service cost
+ interest cost
+/- psc or credit (from changes to plan in cu yr in full)
+/- actuarial g/l (from changes in actuarial assumpt)
- benefits paid
= end of year PBO
- amortz of psc, g/l and transition amts dont affect PBO in cu yr, but they affect pension exp for the year.
Post retirement benefit expense
\+ current svc cost \+ interest cost APBO - actual return on PA \+ amortz of psc - gain amortz or changes in APBO \+ amortz exp. transition amt (net oblig)(longer of 20 yrs or ave svc life)
= Net Post Retirement Benefit Expense/Cost
Post Retirement BO
Do not use PBO Use APBO (based on length of svc, not on wage)
Accrue if:
- probable and estimable
- accumulates or vests
- services already been perfrmd
post retirement Benefits Oblig differences
Per capita claims - unique
- Cost not gen. funded during svc period. So no A to acct for and cost usu include:
- only svc and
- int cost
- (and amortz of psc if plan has credits to ee for psc) - Obligation must be fully accrued by date ee is fully eligible for benefits. Qualify after certain # of yrs and not up to retirement
Pension funded status reported:
- Net A or L rptd on B/S (not notes),
2. PBO - FV PA = B/S
Discount rate used is
neither expected return on PA,
nor actual return on PA
Actual return from plan
Net ⬆️in PA after eliminating effects on contrib to plan and dist to plan
Pension benefits pmts Effects
⬇️ PBO and PA for the same amt.
Thus net effect is 0.
PBO of 380
PA of 290
P/P cost of 20
Net Liability 90
Recog Liability of 110 to offset P/Paid
ER must recog overfunded or underfunded status of plan for the period
Recognize addtl pension liability (!not unreal loss)
PBO - FV Plan assets
Vs
Pension expense for the year
= addtl liability
Dr to OCI to decrease OCI
Cr. Addtl pension L (plus the pp p exp)
N/I + OCI (DENT) = CI
Prepaid pension:
Svc cost: $220,000
Prior svc cost:
Amortz: $83,400
Funded: $114,400
Pension expense would be
220,000+83,400=303,400
The amt funded is the curr svc cost of
220,000+114,400 of funded prior sv cost = 334,400
The diff is 31,000 is prepaid pension cost
Unfunded accrued pension costs
This cost represents the cumulative net pension cost accrued exceeds contribution to the plan.
Pension costs exceeds the amounts contributed to the plan.
