Chapter 19: Pensions and Other Post-Retirement Benefits

Assignment 19-7

Pension expense / Funded status
of plan / Acc’d
OCI / Explanation
Lower mortality rates / Increase / Liability element increases / Create loss / Workers live longer in retirement and are paid pension longer; pension expense higher. Retrospective element increases cumulative liability; re-measurement is a loss in OCI.
Higher turnover / Decrease / Liability element decreases / Create gain / Workers do not stay long enough to be retirees. Non-vested pension amounts released to general use. Therefore, pension expense lower. Retrospective element decreases cumulative liability; re-measurement is a gain in OCI.
Wage roll-back / Decrease / Liability element decreases / Create gain / Workers make less money and pension lower on retirement (as long as based on pay and not flat benefit.)
Therefore, pension expense lower.
Retrospective element decreases cumulative liability; re-measurement is a gain in OCI.

……….Continued

Higher borrowing rates / Depends on interactions…
See expl. / Liability element decreases…
But see expl. / May create gain…
But see expl. / Higher discount rate.
This should cause current service cost to increase, net interest to increase and there should be a gain on the change interest rate assumption, which will reduce the overall defined benefit obligation.
The direction of the change in pension expense depends on the size of the change to current service cost versus net interest. Retrospective element decreases cumulative liability; re-measurement is a gain in OCI.
May also cause an increase in expected wage assumptions; will have opposite effect as above and cancel out some of the change.
May also cause higher actual earnings for pension assets.


Assignment 19-11

Requirement 1
Net defined benefit pension liability/asset, 31 December 20X8
Defined benefit obligation, 31 December 20X8 / $299,000 cr.
Pension plan assets, 31 December 20X8 / 302,000 dr.
Net defined benefit pension asset, 31 December 20X8
Asset ceiling does not apply (per question); no restriction on asset value / $ 3,000 dr.
Requirement 2
Defined benefit obligation, 31 December 20X9
Obligation, 1 January 20X9 / $299,000
Current service cost, 20X9 / 9,100
Interest (5% of opening balance) / 14,950
PSC / 16,000
Actuarial revaluation / (12,000)
Benefits paid / (7,200)
$319,850 cr.
Fair value of plan assets, 31 December 20X9
Value at 1 January 20X9 / $302,000
Actual earnings (loss) on plan assets / (4,700)
Funding contributions / 6,000
Benefits paid / (7,200)
$296,100 dr.
Net defined benefit pension liability, 31 December 20X9
($319,850 - $296,100) (Proof for requirement 4) / $23,750 cr.
Requirement 3
Entries for three elements, and fund contribution
Service cost:
Pension expense ($9,100 plus $16,000)………………………….. / 25,100
Net defined benefit pension asset/liability……………………… / 25,100
Net interest:
Net defined benefit pension asset/liability ………………………. / 150
Pension expense ($3,000 × 5% ) (components are $14,950 (above) less expected earnings of $15,100 ($302,000 × 5% ))….. / 150
Revaluation:
OCI ………………………………………………… / 19,800
Net defined benefit pension asset/liability (Experience loss on assets: $15,100 expected and $4,700 loss actual)…………… / 19,800
Net defined benefit pension asset/liability …………………….. / 12,000
OCI (Revaluation)…………………………………………… / 12,000
Contribution:
Net defined benefit pension asset/liability ………………………. / 6,000
Cash…………………………………………………………….. / 6,000
Requirement 4
Net defined benefit pension liability, 31 December 20X9
($3,000 dr. Op. balance - $25,100cr. + $150 dr. - $19,800 cr. + $12,000 dr. + $6,000 dr.)) / $23,750 cr.
Proof; equal to the net defined benefit pension as calculated in requirement 2


Assignment 19-20

Pension Obligation / Plan Assets / Pension Expense / Net Pension Asset /Liab. / Accumulated OCI
20x4 - Opening / ($216,000) / 0 / $216,000 / 0 / 0
CSC / (51,000) / 51,000
Fund–1 Jan. / 20,000 / 20,000
Net Interest (6% of $216,000) and
(6% of $20,000) / (12,960) / 1,200* / 11,760
Expected versus actual earnings
($1,200 - $1,000) / (200) / ______/ (200) / $200 dr.
$278,760 / (278,760)
Fund 31 Dec $51,000 + $20,000 / ______/ 71,000 / 71,000 / _____
(279,960) / 92,000 / (187,960) / 200 dr.
20X5
CSC / (57,000) / $57,000
Net Interest (6% of $279,960) and (6% of $92,000) / (16,798) / 5,520 / 11,278
Fund - 31 Dec $57,000 + $20,000 +$16,000 / 93,000 / 93,000
Expected versus actual earnings
($5,520 - $6,800) / 1,280 / ______/ 1,280 / (1,280) cr.
$68,278 / (68,278)
Assumptions / ( 16,000) / (16,000) / 16,000 dr.
($369,758) / $191,800 / ($177,958) / $14,920 dr.

*$20,000 invested 1 January and earning interest in 20x4


Assignment 19-28

Requirement 1

Pension expense:
Current service / $ 9,100
Finance cost (revenue)(1) / (150)
Re-measurements:
Experience loss on assets (2) / 19,800
Past service / 16,000
Revaluation / (12,000)
Pension expense (3) / $32,750

Expense:

Pension expense ……………. ………………………… 32,750

Net defined benefit pension asset/liability..…………. 32,750

Contribution:

Net defined benefit pension asset/liability……………….. 6,000

Cash……………………………………………………. 6,000

(1) ($3,000* ´ 5%)

(components are $14,950 less $15,100) = $150 (credit)

* Net defined benefit pension asset, 31 December 20X8

Defined benefit obligation, 31 December 20X8 $299,000 cr.

Pension plan assets, 31 December 20X8 302,000 dr.

Net defined benefit pension asset, 31 December 20X8 $ 3,000 dr.

Asset ceiling is not a limit, per the question.

(2) Experience loss on assets: $15,100 plus $4,700

(3) Alternate calculation based on finance cost for liability only, and actual return; also acceptable and provides the same end result: $9,100 +$14,950 + $4,700 +$16,000 - $12,000 = $32,750

Note: Students may prepare a series of entries, or do an overall calculation of the expense and record it in a summary entry. Either approach is acceptable, but the assignment specified “all entries.”


Requirement 2

Net defined benefit pension liability, 31 December 20X9

($3,000 dr. Op. balance - $32,750 cr. + $6,000 dr.) = $23,750 cr.

Proof: equal to the net defined benefit pension as calculated in A19-10 or below

Defined benefit obligation, 31 December 20X9
Obligation, 1 January 20X9 / $299,000
Current service cost, 20X9 / 9,100
Interest (5% of opening balance) / 14,950
PSC / 16,000
Actuarial revaluation / (12,000)
Benefits paid / (7,200)
$319,850 cr.
Fair value of plan assets, 31 December 20X9
Value at 1 January 20X9 / $302,000
Actual earnings (loss) on plan assets / (4,700)
Funding contributions / 6,000
Benefits paid / (7,200)
$296,100 dr.
Net defined benefit pension liability, 31 December 20X9
($319,850 - $296,100) / $23,750 cr.