Exam 17: Pensions and Other Postretirement Benefits

Oregon Co.'s employees are eligible for retirement with benefits at the end of the year in which both age 60 is attained and they have completed 35 years of service. The benefits provide 15 years reimbursement for health care services of $20,000 annually, beginning one year from the date of retirement. Ralph Young was hired at the beginning of 1977 by Oregon after turning age 22 and is expected to retire at the end of 2020 (age 60). The discount rate is 4%. The plan is unfunded. The PV of an ordinary annuity of $1 where n = 15 and i = 4% is 11.11839. The PV of $1 where n = 2 and i = 4% is 0.92456. - With respect to Ralph, what is the service cost to be included in Oregon's 2018 postretirement benefit expense, rounded to the nearest dollar?

Interest cost will:

Mars Inc. has a defined benefit pension plan. On December 31 (the end of the fiscal year), the company received the PBO report from the actuary. The following information was included in the report: ending PBO, $110,000; benefits paid to retirees, $10,000; interest cost, $7,200. The discount rate applied by the actuary was 8%. What was the beginning PBO?

A net gain or net loss affects pension expense only if it exceeds 10% of the pension benefit obligation or 10% of plan assets, whichever is lower.

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Funded status

When the service method is used for amortizing prior service costs, the amount recognized each year is:

Listed below are six terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Defined contribution plan

Which of the following is not true with regard to pension plans?

The following information pertains to Havana Corporation's defined benefit pension plan: $\begin{array}{lrr}\$ 111000 \mathrm{~s})&2018 & 2019 \\&\text { Beginning } & \text { Beginning } \\&\text { Beginning } & \text { Beginning } \\\text { Projected benefit obligation } & \$(6,000) & \$(6,504) \\\text { Plan assets } & 5,760 & 6,336 \\\text { Prior service cost-AOCI } & 600 & 552\\\text { Net loss-AOCI }&720,786\end{array}$ At the end of 2018, Havana contributed $696 thousand to the pension fund and benefit payments of $624 thousand were made to retirees. The expected rate of return on plan assets was 10%, and the actuary's discount rate is 8%. There were no changes in actuarial estimates and assumptions regarding the PBO. - What is the 2018 service cost for Havana's plan?

Bazerman Inc. has a postretirement health care benefit plan. On January 1 of the current calendar year, the following plan-related data were available. Net loss-postretirement benefit plan \ 244,000 Accumulated postretirement benefit obligation \ 2,200,000 Fair value of plan assets \ 450,000 Average remaining service period to retirement 12 years Average remaining service period to full eligibility 10 years The rate of return on plan assets during the year was 12%. The expected return was 10%. The actuary revised assumptions regarding the APBO at the end of the year, resulting in a $42,000 increase in the estimate of the obligation. Required: 1) Calculate any amortization of net loss that should be included as a component of postretirement benefit expense for the current year. 2) Determine the net loss or gain as of December 31 of the current year.

The estimated medical costs are expected to be $7,500 during an employee's retirement. The retiree is expected to pay 30% of the cost and Medicare is expected to pay 50% of the cost. What is the company's estimated net cost of benefits?

The postretirement benefit obligation is the:

Discuss income smoothing as the term relates to pension plans.

The following information pertains to Havana Corporation's defined benefit pension plan: $\begin{array}{lrr}\$ 111000 \mathrm{~s})&2018 & 2019 \\&\text { Beginning } & \text { Beginning } \\&\text { Beginning } & \text { Beginning } \\\text { Projected benefit obligation } & \$(6,000) & \$(6,504) \\\text { Plan assets } & 5,760 & 6,336 \\\text { Prior service cost-AOCI } & 600 & 552\\\text { Net loss-AOCI }&720,786\end{array}$ At the end of 2018, Havana contributed $696 thousand to the pension fund and benefit payments of $624 thousand were made to retirees. The expected rate of return on plan assets was 10%, and the actuary's discount rate is 8%. There were no changes in actuarial estimates and assumptions regarding the PBO. -What is Havana's 2018 actual return on plan assets?

The accounting for defined contribution pension plans is easy because each year:

Lender Company provides postretirement health care benefits to employees who provide at least 10 years of service and reach the age of 65 while in service. On January 1 of the current calendar year, the following plan-related data were available. On January 1 of the current year, Lender amends the plan to provide dental benefits. The actuary determines that the cost of making the amendment increases the APBO by $20,000,000. Management chooses to amortize this amount on a straight-line basis. The service cost is $40,000,000. The appropriate interest rate is 10%. Required: Calculate the postretirement benefit expense for the current year.

Recording pension expense would usually:

Which of the following is not an uncertainty that complicates determining how much to set aside each year to ensure that sufficient funds are available to provide the benefits promised under a defined benefit plan?

Pension data for Sewell Corporation include the following for the current calendar year: Discount rate, 8\% Expected return on plan assets, 10\% Actual return on plan assets, 12\% PBO, January 1 \ 620,000,000 Plan assets, January 1 630,000,000 Plan assets, December 31 670,000,000 Benefit payments to retirees, December 31 55,000,000 Required: Assuming cash contributions were made at the end of the year, what was the amount of those contributions?

According to generally accepted accounting principles, accounting for postretirement benefits other than pensions must adhere to the: