Accumulated Benefit ObligationProjected Benefit Obligation
Accumulated Benefit Obligation-based on current and past compensation levelsProjected Benefit Obligation-uses assumptions of future compensation levels
Ending PBO formula
Beginning PBO+Service Cost+Interest Cost+Prior Service Cost Amort+Actual Losses-Actual Gains-Benefits paid=Ending PBO
Actual return on plan assets formula
Beginning Fv of plan assets+contributions+actual return (plug)-benefits paid =Ending Fv of plan assets
Net periodic pension expense formula
SIRAGES-Service CostI- + Interest costR- <Return on plan assets>A - +Amortization of Prior Service CostG - <Gains> + LossesE- Amortization of existing obligation/asset=Net periodic pension expense
Formulas for:-Interest Cost-Expected Return-Amortization of Prior Service Cost-Gains and Losses-Amortization of Existing Obligation/Asset
1. Interest CostBeginning PBO* Discount Rate2. Expected ReturnBeginning FV of assets * expected rate of return3. Amortization of prior service costsunamortized service cost/average remaining service period4. Gains/LossActual return - Expected return (positive = gain)AND any changes in actual assumptions5. Amortization of Existing ObligationPBO-FV of planned assets=initial unfunded obligation/ Greater of : 15 years or average employee job life=minimum amortization
Accounting for gains and losses
-either recognize in period incurred in income statement-OR recognize in OCI and amortizeUnrecognized G/L- Greater of: 10% beg PBO or market related value=Excess/average remaining life=amortization of unrecognized gain/loss
Funded Status Formula
FV of plan assets-PBO=Positive =overfunded=Negative = underfunded