Pension Plans Flashcards
A pension plan and the sponsoring company are two:
separate legal entities
Specifies the periodic amount of contributions to the plan and the way that the contributions should be allocated to employees. ex: 401k
defined contribution plan
Defines the benefits to be paid to employees at retirement. Contributions are computed using actuarial assumptions of future benefit payments
Defined benefit plan
An accumulated benefit obligation (ABO) uses ______ salary to determine the value of benefits
current
A projected benefit obligation (PBO) uses _______ salary to determine the value of benefits
future
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
increases; amortized
Ending FV of plan assets =
beg FV of plan assets + contributions + actual return on plan assets - benefits paid to retirees
Elements of US GAAP net pension expense (income statement)
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
Interest cost =
beginning of period PBO x discount rate
The actual return on plan assets can be found using the _______ formula
BASE
The expected return on plan assets =
beg. FV of plan assets x expected rate of return on plan assets
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
other comprehensive income; amortized
Unrecognized prior service cost is in:
AOCI
The unrecognized prior service cost in AOCI is _______ to pension expense over the plan participant’s remaining years of service
amortized
Amortization of prior service cost =
beg. unrecognized prior service cost / avg remaining service life
2 sources gains and losses arise from:
1) the difference between the expected and actual return on plan assets
2) changes in actuarial assumptions
Unamortized gains and losses are in:
AOCI
Gains and losses are ________ using the corridor approach
amortized
Amortization of unrecognized gain or loss =
beg unrecognized gain/loss
(the greater of 10% of the PBO OR market related value)
divided by avg remaining service life
Unamortized existing net obligation or net asset at implementation is in:
AOCI
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
15
minimum amortization of existing net obligation or net asset at implementation =
(PBO - FV plan assets) / greater of 15 years or avg employee job life
Funded status =
FV of plan assets - PBO
A pension plan assets is always ______ and means the pension is ________
noncurrent; overfunded
A pension plan liability can be a ______, ________, or ______ liability and means the pension is ________
current; noncurrent; both; underfunded
JE for prior service costs or pension losses (A in AGE)
DR: OCI
CR: pension benefit asset/liability
JE to record deferred tax asset for prior service costs or pension losses :
DR: Deferred tax asset
CR: deferred tax benefit - OCI
JE to record amortization of prior service cost or pension losses:
DR: net periodic pension cost
CR: OCI
JE to record deferred tax benefit for amortization of prior service cost or pension losses:
DR: deferred tax benefit - OCI
CR: deferred tax benefit - income statement
JE for recognition of pension gains
DR: pension benefit asset/liability
CR: OCI
JE for deferred tax expense for pension gains
DR: deferred tax expense - OCI
CR: deferred tax liability
JE for amortization of gain
DR: OCI
CR: net periodic pension cost
JE for amortization of deferred tax expense
DR: deferred tax expense - income statement
CR: deferred tax expense - OCI
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 ________
balance sheet
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
settlements
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
curtailments
Financial statements must be presented for the:
pension plan itself
Under GAAP, the service cost component of net periodic pension cost is measured using the:
projected benefit obligation (PBO)
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.
Accumulated benefit obligation
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.
gains; OCI
Under IFRS, past service cost is recognized on the income statement __ ___ ______ of the plan amendment.
in the period
Pension plan investment assets must be reported at __________ in a defined benefit plan’s financial statements.
fair value
Companies are required to report the funded status of their pension plan on the ____________ as an asset or liability (or both).
balance sheet/ statement of financial position
In the financial statements of employee benefit pension plans and trusts, the plan investments must be reported at ________
fair value
Interest cost will decrease due to a decrease in the ______ ______, resulting in pension expense decreasing
discount rate
