Pensions

Question 1

What are the elements of US GAAP net periodic pension cost/expense?

Answer 1

“SIRAGE”

  Service cost (current)*
\+Interest cost
- Return on plan assets
\+Amortization of prior service cost
-Gains/+losses
\+Existing net obligation amortization or net asset

*IFRS: Service cost includes both current and past service costs

Question 2

How is the interest cost calculated?

Answer 2

Using the discount rate:

beginning of period PBO x discount rate

Question 3

How are the return on plan assets calculated?

Answer 3

One of 2 ways:

Actual return on plan assets which is a plug:
  Beginning FV
\+Contributions
  PLUG: actual return
-Benefit payments
=Ending FV

OR

Expected return on plan assets:
beginning FV of plan assets
x Expected ROR on plan assets
*Difference between actual and expected return is recognized in OCI each period and then amortized to pension expense over time with any actuarial gains/losses

Question 4

How is funded status calculated?

Answer 4

FV of plan assets - PBO

if + then overfunded, which is an asset, and is always classified as noncurrent

if - then underfunded, which is a liability, and can be classified as current, noncurrent or both depending on when payable

Also, if benefits payable in the next year exceed the FV of plan assets, then current portion is the amount of the funded status that exceeds the benefits payable in the next year, and the noncurrent portion is the remaining funded status.