Pensions Flashcards
WHAT is the “Unfunded Projected Benefit Obligation?”
THE difference between the Projected Benefit Obligation and the Fair Value of Plan Assets
YOU would take the Projected Benefit Obligation and subtract it from the Fair Value of the Plan Asset
THIS would give you your “Unfunded Projected Benefit Obligation” – This also would be the reported liability related to a single-employer defined benefit pension plan
WHAT disclosures are required of a company with a defined-benefit pension plan?
(1) Components of period pension costs
(2) Amount of unrecognized prior service cost
(3) Detailed description of the plan including employee groups covered
(4) weighted-average discount rate
HOW are Prior Service Costs (PSC) related to plan amendments treated?
AS increases in the Projected Benefit Obligation (PBO)
i. e. They are amortized over an appropriate period based on the expected service lives of the employees covered
e. g. This means that the Prior Service Costs (PSC) amortization is reflected in the financial statements as an “adjustment” to pension expense in the year of the amendment and the years moving forward (NOT Backward)
HOW do you calculate your Unrecognized prior service cost amortization for a particular year?
TAKE the amount of service years in the current year divide it by total amount of service years in the future and multiply this number by the amount of unrecognized prior service Costs
HOW would you calculate your amortization of prior service costs?
(TOTAL Employees x TOTAL Service Years) X Unamortized Prior Service Costs
WHAT would reduce your Projected Benefit Obligation (PBO)?
Pension benefits paid during the Year
WHAT would increase your Projected Benefit Obligation (PBO)?
(1) Interest cost = (Current Year Actuarial estimate of projected benefit obligation x Assumed discount rate (settlement rate))
(2) Service costs
(3) Amortization of prior service cost
HOW will you know if you need to accrue an additional liability?
BASED on any difference between the following (2) factors:
(1) Projected benefit obligation - Plan assets at fair value = Minimum Pension Liability
(2) Net periodic pension cost - Employer’s contribution = Accrued Pension Liability
IF the Accrued is Less than the Minimum, then you would increase your liability for the Pension liability by the difference of the two
WHAT costs are unique to postretirement health-care benefits?
PER CAPITA CLAIMS
WHAT are considered “common costs” of postretirement benefits?
(1) Service costs
(2) Prior service costs
(3) Interest costs
WHAT note disclosure is required for a company with a defined benefit pension plan?
A “reconciliation” of the funded status of the plan with accrued or prepaid pension cost reported in its balance sheet
HOW would you identify your “minimum pension liability?”
BY taking your Projected Benefit Obligation and subtracting it from your Plan assets (at their Fair Market Value)
HOW do you identify your additional pension liability when you know your (1) Unfunded projected benefit obligation and (2) your Net periodic pension cost?
You would take the difference of the (2)
e.g. If your Unfunded projected benefit obligation is $15,000 and your Net periodic pension cost $6,000;
Your additional Pension Liability would be the $9,000 difference
HOW is the Interest component of a pension expense for a projected benefit obligation determined?
Using the Time Value of Money
IT does NOT involve the (1) Expected return on plan assets or (2) the Actual return on plan assets
HOW does an amendment to a defined benefit pension plan affect prior service cost?
BY decreasing prior service cost, which will decrease pension expense as it is amortized
e.g. If an employer changes their benefit pension plan collection age from 62 to 69.
