Pensions

Question 1

DB

Answer 1

China
Employer pay after retirement
firm bears the risk

Question 2

DC

Answer 2

US
Employee contributes and bears the risk

Question 3

PBO/PVDBO (IFRS)

Answer 3

actuarial pv as a date of al benefits attributed by the pension benefit formula to employee service rendered prior to that date
(LIABILITY)

assumptions:
expected futures salary increases
going concern
employee’s continued service

Question 4

Accumulated benefit obligation

Answer 4

actuarial pv of benefits attributed to employee service rendered prior to that date and based on current and past compensation levels

current compensation levels
liquidation of pension obligation

Question 5

Vested Benefit obligation

Answer 5

the amount of ABO to which the employee is entitled

vesting schedule

Question 6

Fund Status

Answer 6

report on B/S under IFRS and US GAAP

= FV OF PA - FV of PBO
if < 0 , underfunded as net pension liability
>0, overfunded, net pension asset
report the surplus in min(surplus, asset ceiling)

subject to a ceiling defined as the pv of future economic benefits, such as refunds from the plan or reductions of future contribution

Question 7

Plan Asset

Answer 7

BB FV PA
+Employer contribution
+Actual return
-benefit paid to employee

Question 8

PBO

Answer 8

BB PBO
+Current service cost
+past service cost (plan amendments during the year)
+interest costs
+actuarial losses
-actuarial gains during the year
-benefit paid to employee

Question 9

Assumptions of PBO

Answer 9

1. Discount rate: based on current rates of return on high quality corporate bonds with durations consistent with the durations of the benefit
2. assumed rate of increase in compensation
3. vesting
   disclose the discount rate, the expected return on plan assets, and the rate of compensation growth in footnote

Question 10

Pension Expense - US GAAP

Answer 10

Recognized in P&L:

Current service cost
+Interest cost = bb PBO* discount rate
-Expected return on PA = discount rate * BB PA
+Amortization of gain/loss
+amortization of prior service cost (oci)

Recognized in OCI:
the amortization of past service costs

Actuarial gains/losses
= diff. b/w expected return on PA - actual return on PA

unamortized Past Service Cost, subsequent period are amortized to P&L over the average service lives of the affected employees

Question 10

Pension expense - IFRS

Answer 10

Service cost (current &past) recognized as an expense in P&L

Net interest expense
=dr * bb fund status

remeasurement gains/losses
-actuarial gains/losses affecting PVDBO
&
diff. in actual and expected returns

Question 11

Expected return on PA

Answer 11

has no effect on pension obligation, but reduces pension expenses