Exam 17: Pensions and Other Employee Future Benefits

Current service cost for a defined benefit pension plan amounted to $7,800,000.This pension plan's assets generated $6,500,000 of income,which exceeded expectations by $550,000.Pension obligations incurred interest cost of $5,500,000,which were above expectations by $280,000.Amortizations during the year included $400,000 for past service cost and $57,000 of corridor amortization relating to actuarial gains. Requirement: Compute the amount of pension expense for the year.

What are past service costs in a defined benefit plan?

Explain how a change in the following assumption will impact the pension surplus.

Explain how amounts outside of the "corridor limit" are accounted for in the financial records.

At the beginning of the current year,a pension has assets of $74,500,000 and accrued benefit obligation of $77,500,000.At this time,unamortized actuarial losses were $6,750,000 on plan assets and $2,800,000 on plan obligations.The expected average remaining service lives (EARSL)of current employees is 18 years. Requirement: Compute the minimum corridor amortization.

Changing Assumptions Ltd.has the following details related to its defined benefit pension plan as at December 31,2013: Pension fund assets of $1,900,000 and Actuarial obligation of $1,806,317. The actuarial obligation represents the present value of a single benefit payment of $3,200,000 that is due on December 31,2019,discounted at an interest rate of 10%; i.e.,$3,200,000 / 1.10⁶ = $1,806,317. The pension has no unamortized experience gains or losses,and no past service costs at the end of 2013.Funding during 2014 was $55,000.The actual value of pension fund assets at the end of 2014 was $2,171,000.As a result of the current services received from employees,the single payment due on December 31,2019 had increased from $3,200,000 to $3,380,000. Required: a.Compute the current service cost for 2014 and the amount of the accrued benefit obligation at December 31,2014.Perform this computation for interest rates of 8%,10%,and 12%. b.Derive the pension expense for 2014 under various assumptions about the expected return and discount rate.Complete the following table: c.Briefly comment on the different amounts of pension expense in relation to the assumptions for expected return and discount rate.How does a change in the discount rate affect the accrued benefit obligation?

Feldman has a defined benefit pension plan.The company's balance sheet shows a defined benefit asset of $770,000 at year-end.The company's records show that the company had amended the pension plan two years ago,giving rise to $600,000 of additional benefits to employees.These additional benefits vest 10 years after the plan amendment.The balance of unamortized actuarial losses at year-end is $340,000.The pension plan has $35,000,000 of assets at market value. Requirement: Determine the value of the accrued benefit obligation for Feldman's pension plan.

A pension plan promises to pay $70,000 at the end of each year for 10 years of the retirement period. Requirements: Compute the funds required to fund this pension plan at the start of the retirement period assuming: a.discount rate of 12%; or b.discount rate of 9%.

Bram Masons' balance sheet shows a defined benefit liability of $740,000.Records show that there are $89,000 of past service costs and $610,000 of actuarial gains that remain unamortized. Requirement: Using the pension reconciliation required in Bram's note disclosures,determine the pension plan's surplus or deficit.

Saul is currently 30 years old and he plans to retire early,in 20 years' time.He would like to have an income of $60,000 per year during his retirement,which he anticipates will last for another 40 years.Assume that he receives the retirement income at the end of each of the 40 years. Required: Determine the amount of money he will need to have accumulated by the time he starts his retirement.Assume a discount rate of 5%.

What is the total pension expense for the following plan after 5 years? "The plan requires the company to contribute $500 for each of its 1,000 employees.The plan hopes to accumulate enough funds so that retirees receive $20,000 in the future; the company has no obligation to guarantee the investment returns."

A company has a defined benefit pension liability of $750,000 at the beginning of the year.The company contributes $2,500,000 to the pension during the year and records a pension expense of $2,200,000. Requirement: Determine the value of the defined benefit pension liability at year-end.

KitKat Singh is currently 30 years old and he plans to retire early,in 25 years' time.He would like to have an income of $50,000 per year during his retirement,which he anticipates will last for another 30 years.Assume that he receives the retirement income at the end of each of the 30 years. Required: Determine the amount of money he will need to have accumulated by the time he starts his retirement.Assume a discount rate of 5%.

What are actuarial losses or gains in a defined benefit plan?

Explain how a change in the following assumption will impact the pension expense.

At the beginning of the current year,a pension has assets of $74,500,000 and accrued benefit obligation of $77,500,000.At this time,unamortized actuarial gains were $750,000 on plan assets and $800,000 on plan obligations.The expected average remaining service lives (EARSL)of current employees is 25 years. Requirement: Compute the minimum corridor amortization.

A pension plan promises to pay $75,000 at the end of each year of the retirement period. Requirements: Compute the funds required to fund this pension plan at the start of the retirement period assuming: a.discount rate of 9% and a retirement period of 30 years; or b.discount rate of 9% and a retirement period of 40 years.

What is the corridor limit for fiscal 2014? Balance at Dec 31 Fiscal 2013 Fiscal 2014 Pension assets 15,000,000 13,000,000 Pension obligation 13,200,000 13,500,000 Unamortized actuarial gains 250,000 1,300,000

Feldman has a defined benefit pension plan.The company's balance sheet shows a defined benefit liability of $770,000 at year-end.The company's records show that the company had amended the pension plan two years ago,giving rise to $600,000 of additional benefits to employees.These additional benefits vest 10 years after the plan amendment.The balance of unamortized actuarial gains at year-end is $340,000.The pension plan has $35,000,000 of assets at market value. Requirement: Determine the value of the accrued benefit obligation for Feldman's pension plan.

Explain how a change in the following assumption will impact the defined benefit asset on the balance sheet.