Kieso 13Th Ed. Ch 20 Pensions

Front 1

Defined-contribution plan

Back 1

The employer agrees to contribute to a pension trust a certain sum each period based on a formula. (age, length of svc, employer profits, compensation level) Only employers contribution is defined; no promise made regarding the ultimate benefits paid out to employees.

Front 2

Defined Benefit plan

Back 2

defines the benefits that the employee will receive at the time of retirement. Formula based on employees years of service and compensation level when nearing retirement.

Front 3

Pension obligation

Back 3

Vested benefits obligation

non-vested and vested years of service (Acc benefit obligation)

Projected benefit obligation (using future salaries)

Front 4

Vested Benefits Obligation

Back 4

only uses vested benefits at current salary levels.
usually requires a certain # of service years.
benefits that employee is entitled to if no more years of service.

Front 5

Accumulated Benefit Obligation

Back 5

defers compensation amount on all years of employees' service both vested and non-vested using current salary levels

Front 6

Pension expense is a function of the following

Back 6

service cost
interest on the liability
return of plan assets
amortization of PSC
Gains/losses

Front 7

Corridor approach

Back 7

10% of the larger beginning balance of PBO or Market related value of the plan assets. Sets the limit.
anything beyond the limit is a gain or loss and must be amortized.

Front 8

Requirements for reporting pension plans in the financial's

Back 8

pension expense for the period
schedule w/changes in benefit obligation & plan assets during the year
amount of PSC and net G/L in Acc OCI
table showing allocation of pension plan assets by category and % of FV to total plan asset.
The expected benefit payment for cur plan participants for each of the next 5 fiscal years.

Front 9

Qualified pension plans

Back 9

plans that offer tax benefits
permit deductibility of employers contributions to the pension fund and tax free status of earnings from pension fund assets

Front 10

Pension fund should be a ________ legal and accounting entity

Back 10

Separate

Front 11

the pension fund, as a separate entity, maintains__ ___ __ _____ and prepares financial statements

Back 11

a set of books

Front 12

the 2 most common types of pension plans

Back 12

defined contribution plan
defined benefit plan

Front 13

Defined contribution plan

Back 13

401 (K) type.
The plan only defines the employers contribution.
Usually independent 3rd party maintained.

Front 14

Defined Benefit Plan

Back 14

outlines benefits employees receive when they retire (time value money)
the employer is responsible for the payment of the defined benefits.
Employer at risk...must contribute enough to meet cost of benefits plan defines.

Front 15

Projected benefit obligation

Back 15

deferred compensation for both vested and non vested service using FUTURE salaries.
largest measure of pension obligation
(FASB's choice)

Front 16

Vested Benefit Obligation

Back 16

benefits for vested employees only at current salaries

Front 17

Accumulated benefit obligation

Back 17

Benefits for non vested employees at current salaries & benefits for vested employees only at current salaries

Front 18

Companies must recognize on their b/s the full __________ or __________ status of their defined benefit plan

Back 18

Overfunded, Underfunded

Front 19

Over/Under Funded?

PBO=$300,000
FV Plan Assets=$210,000

Back 19

$300,000-$210,000 underfunded by $90,000 therefore reports as a liability

Front 20

Over/Under Funded

PBO=$300,000
FV Plan Assets= $430,000

Back 20

$300,000-$430,000 overfunded by $130,000 therefore reports pension asset

Front 21

Which columns do you book?

Service Cost

Back 21

Dr- pension expense
Cr-PBO

Front 22

Which columns do you book?

Interest Costs

Back 22

Dr- Pension Exp
Cr- PBO

Front 23

Which columns do you book?

Actual Return

Back 23

Cr- Pension expense
Dr- Plan Assets

Front 24

Which columns do you book?

Unexpected loss

Back 24

Cr- Pension expense
Dr- OCI G/L

Front 25

Which columns do you book?

Amortization of PSC

Back 25

Dr- Pension Expense
Cr- OCI PSC

Front 26

Which columns do you book?

Contribution/Funding

Back 26

Cr- Cash
Dr- plan Assets

Front 27

Which columns do you book?

paid benefits

Back 27

Dr- PBO
Cr- Plan Assets

Front 28

Which columns do you book?

Liability increase

Back 28

Dr- OCI G/L
Cr- PBO

Front 29

Calculate Current year unexpected G/L

Back 29

Actual Return - expected return

Front 30

Calculate amortized net G/L

Back 30

(BOY Acc OCI - Corridor) / avg remaining service life

Front 31

Calculate corridor

Back 31

10% of PBO or Mkt Plan Assets
which ever is larger

Front 32

Should a company report an expense for PSC at the time it initiates or amends a plan?

Back 32

No- it would not provide credit for the past years of service unless it expects to receive benefits in the future.
do not recognize retro active benefits as pension expense. It adjusts OCI and recognizes as a pension expense over remaining service years

Front 33

Calculate Actual Return

Back 33

End Plan Assets - Beg Plan Ass
less
Contributions- benefits paid

Front 34

Do companies record the EPBO (expected postretirement benefit obligation) to the financial statements?

Back 34

No- but they use it to measure periodic expense

Front 35

2 obligations under post retirement benefits

Back 35

Expected post-retirement benefit obligation (EPBO)- all benefits paid afte retirement of employee and their dependents
Accumulated Post-retirement Benefit Obligation (APBO)- actuarial present value of the future benefits attributed to employees services rendered to a particular date

Front 36

When is APBO = EPBO?

Back 36

for retirees and active employees fully eligible for benefits.

Front 37

What is the difference between APBO and EPBO?

Back 37

the future service costs of active employees who are not fully eligible yet.