Pension Plans

Question 1

A pension plan and the sponsoring company are two:

Answer 1

separate legal entities

Question 2

Specifies the periodic amount of contributions to the plan and the way that the contributions should be allocated to employees. ex: 401k

Answer 2

defined contribution plan

Question 3

Defines the benefits to be paid to employees at retirement. Contributions are computed using actuarial assumptions of future benefit payments

Answer 3

Defined benefit plan

Question 4

An accumulated benefit obligation (ABO) uses ______ salary to determine the value of benefits

Answer 4

current

Question 5

A projected benefit obligation (PBO) uses _______ salary to determine the value of benefits

Answer 5

future

Question 6

Prior service costs _______ the PBO in the period of the plan initiation or amendment and should be ________ to pension expense over the future service periods of the affected employees

Answer 6

increases; amortized

Question 7

Ending FV of plan assets =

Answer 7

beg FV of plan assets + contributions + actual return on plan assets - benefits paid to retirees

Question 8

Elements of US GAAP net pension expense (income statement)

Answer 8

SIR AGE
Service cost + interest cost - return on plan assets + amortization of prior service cost - gains + losses + amortization of existing net obligation or net assets

Question 9

Interest cost =

Answer 9

beginning of period PBO x discount rate

Question 10

The actual return on plan assets can be found using the _______ formula

Answer 10

BASE

Question 11

The expected return on plan assets =

Answer 11

beg. FV of plan assets x expected rate of return on plan assets

Question 12

The difference between the actual and expected return on plan assets must be recognized in ______________ each period and then ________ to pension expense over time with any actuarial gains or losses

Answer 12

other comprehensive income; amortized

Question 13

Unrecognized prior service cost is in:

Answer 13

AOCI

Question 14

The unrecognized prior service cost in AOCI is _______ to pension expense over the plan participant’s remaining years of service

Answer 14

amortized

Question 15

Amortization of prior service cost =

Answer 15

beg. unrecognized prior service cost / avg remaining service life

Question 16

2 sources gains and losses arise from:

Answer 16

1) the difference between the expected and actual return on plan assets
2) changes in actuarial assumptions

Question 17

Unamortized gains and losses are in:

Answer 17

AOCI

Question 18

Gains and losses are ________ using the corridor approach

Answer 18

amortized

Question 19

Amortization of unrecognized gain or loss =

Answer 19

beg unrecognized gain/loss
(the greater of 10% of the PBO OR market related value)
divided by avg remaining service life

Question 20

Unamortized existing net obligation or net asset at implementation is in:

Answer 20

AOCI

Question 21

Existing net obligation or net asset at implementation is amortized over the greater of _____ years or the average remaining job life of the company’s employees

Answer 21

15

Question 22

minimum amortization of existing net obligation or net asset at implementation =

Answer 22

(PBO - FV plan assets) / greater of 15 years or avg employee job life

Question 23

Funded status =

Answer 23

FV of plan assets - PBO

Question 24

A pension plan assets is always ______ and means the pension is ________

Answer 24

noncurrent; overfunded

Question 25

A pension plan liability can be a ______, ________, or ______ liability and means the pension is ________

Answer 25

current; noncurrent; both; underfunded

Question 26

JE for prior service costs or pension losses (A in AGE)

Answer 26

DR: OCI
CR: pension benefit asset/liability

Question 27

JE to record deferred tax asset for prior service costs or pension losses :

Answer 27

DR: Deferred tax asset
CR: deferred tax benefit - OCI

Question 28

JE to record amortization of prior service cost or pension losses:

Answer 28

DR: net periodic pension cost
CR: OCI

Question 29

JE to record deferred tax benefit for amortization of prior service cost or pension losses:

Answer 29

DR: deferred tax benefit - OCI
CR: deferred tax benefit - income statement

Question 30

JE for recognition of pension gains

Answer 30

DR: pension benefit asset/liability
CR: OCI

Question 31

JE for deferred tax expense for pension gains

Answer 31

DR: deferred tax expense - OCI
CR: deferred tax liability

Question 32

JE for amortization of gain

Answer 32

DR: OCI
CR: net periodic pension cost

Question 33

JE for amortization of deferred tax expense

Answer 33

DR: deferred tax expense - income statement
CR: deferred tax expense - OCI

Question 34

GAAP requires that the measurement date of the plan assets and benefit obligations of a defined benefit pension plan must be aligned with the date of the employer’s ________

Answer 34

balance sheet

Question 35

Occur when the pension plan assets increase in value to the point that sale of the pension plan assets allows a company to purchase annuity contracts to satisfy pension obligations

Answer 35

settlements

Question 36

Events that reduce the expected remaining years of service for present employees or eliminate accrual of defined benefits for future services of a significant number of employees

Answer 36

curtailments

Question 37

Financial statements must be presented for the:

Answer 37

pension plan itself

Question 38

Under GAAP, the service cost component of net periodic pension cost is measured using the:

Answer 38

projected benefit obligation (PBO)

Question 39

the present value of future retirement payments attributed to the pension benefit formula to employee services rendered prior to a date, based on current and past compensation levels.

Answer 39

Accumulated benefit obligation

Question 40

Under IFRS, remeasurements of the defined benefit liability (asset), including remeasurements from actuarial _____, are reported in __________ and are not reclassified (amortized) to the income statement.

Answer 40

gains; OCI

Question 41

Under IFRS, past service cost is recognized on the income statement __ ___ ______ of the plan amendment.

Answer 41

in the period

Question 42

Pension plan investment assets must be reported at __________ in a defined benefit plan’s financial statements.

Answer 42

fair value

Question 43

Companies are required to report the funded status of their pension plan on the ____________ as an asset or liability (or both).

Answer 43

balance sheet/ statement of financial position

Question 44

In the financial statements of employee benefit pension plans and trusts, the plan investments must be reported at ________

Answer 44

fair value

Question 45

Interest cost will decrease due to a decrease in the ______ ______, resulting in pension expense decreasing

Answer 45

discount rate