Section 7100: Employee Benefits
[U.S. GAAP Codification Topic]
710 Compensation - general
710-10 Overall
712 Compensation - nonretirement postemployment benefits
712-10 Overall4
715 Compensation - retirement benefits
715-10 Overall
715-20 Defined benefit plans-general
715-30 Defined benefit plans-pension
715-60 Defined benefit plans-other postretirement
715-70 Defined contribution plans
715-80 Multiemployer plans
[U.S. GAAP before the Codification]
SFAS 43, November 1980, Accounting for Compensated Assets
SFAS 112, November 1992, Employers' Accounting for Postemployment Benefits, an amendment of FASB Statements No. 5 and 43
SFAS 87, December 1985, Employers' Accounting for Pensions
SFAS 88, December 1985, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits
SFAS 106, December 1990, Employers' Accounting for Postretirement Benefits Other Than Pensions
SFAS 132, February 1998, Employers' Disclosures about Pensions and Other Postretirement Benefits
SFAS 132(R), December 2003, Employers' Disclosures about Pensions and Other Postretirement Benefits
SFAS 158, December 2006, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)
1. Key Topics of Employers' Accounting for Pensions
(1) Basic elements of pension accounting
(2) Recognition: Net periodic pension cost
(3) Recognition: Liabilities and assets
(4) Measurement: Costs and obligations
(5) Measurement: Plan assets
(6) Multiemployer plans
2. Projected Benefit Obligation (PBO)
Actuarial present value of benefits,
--> based on future compensation levels
3. Accumulated Benefit Obligation (ABO)
Actuarial present value of benefits,
--> based on current and past compensation levels
4. Vested Benefit Obligation
--> Vested portion of accumulated benefit obligation
5. Components of Net Periodic Pension Cost
(1) Service cost
(2) Interest cost
(3) Actual return on plan assets
(4) Gain or loss
(5) Amortization of prior service cost or credit
(6) Amortization of net transition asset or obligation
6. Service Cost
Actuarial present value of benefits
--> attributed to
--> employee service
--> during the period
7. Interest Cost
Increase in the Projected Benefit Obligation
--> due to the passage of time
8. Interest cost is accrued
--> at the assumed discount rates
9. Actual Return on Plan Assets
The difference between (1) and (2)
--> as adjusted for (3)
(1) Fair value of plan assets at the beginning of the period
(2) Fair value of plan assets at the end of the period
(3) Contributions and Benefit Payments
10. Prior Service Cost
(1) Retroactive benefits due to plan amendments are
--> charged to Other Comprehensive Income (OCI)
--> at the date of amendment
(2) Amortized over future period of service
--> of each employee active at the date of amendment
--> equal amount to each period
(3) Amortized amount is
--> a component of net periodic pension cost
11. Gains and Losses
(1) Unexpected changes in the amount of
--> Plan Assets or Projected Benefit Obligation (PBO)
(2) Unexpected changes
--> Assets: Actual return - Expected return
--> PBO: Forecast errors on actuarial assumptions
12. Unrecognized Gains and Losses
(1) Gains and losses are
--> not required to be recognized
--> in net periodic pension cost
--> when they occur
(2) Unrecognized gains and losses are
--> accumulated in Other Comprehensive Income (OCI)
13. Corridor Approach
(1) If unrecognized gains and losses accumulated in OCI
--> does not exceed 10% of (A),
--> no amortization
(A) the greater of (B) and (C)
(B) Market-related value of plan assets
(C) Projected Benefit Obligation
(2) If unrecognized gains and losses accumulated in OCI
--> exceeds 10% of (A)
--> the excess is amortized
--> amortization is included in net periodic pension cost
14. Minimum amount of amortization
(1) The excess is divided by
--> the average remaining service period of
--> active employees
--> expected to receive benefits
(2) If all or almost all participants are inactive
--> the average remaining life expectancy of
--> inactive participants
--> is used
15. Market-related value of plan assets
(1) Market-related Value is either (a) or (b)
(a) Fair Value
(b) Calculated Value
(2) Calculated value is the amount
--> that recognizes changes in fair value
--> in a systematic and rational manner
--> over NOT more than 5 years
16. Unfunded PBO
(1) Fair Value of Plan Assets
(2) Projected Benefit Obligation (PBO)
If (1) < (2)
--> recognize Unfunded PBO as a liability
If (1) > (2)
--> recognized Overfunded PBO as an asset
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