The following pension-related data pertain to Metro Recreation\'s noncontributor
ID: 2530526 • Letter: T
Question
The following pension-related data pertain to Metro Recreation's noncontributory, defined benefit pension plan for 2018: ($ in 000s) Jan. 1 Dec. 31 Projected benefit obligation $ 4,800 $ 5,080 Accumulated benefit obligation 3,750 4,020 Plan assets (fair value) 5,580 6,025 Interest (discount) rate, 7% Expected return on plan assets, 10% Prior service cost?AOCI (from Dec. 31, 2017, amendment) 910 Net loss?AOCI 578 Average remaining service life: 10 years Gain due to changes in actuarial assumptions 52 Contributions to pension fund (end of year) 410 Pension benefits paid (end of year) 365 Required: Prepare a pension spreadsheet that shows the relationships among the various pension balances, shows the changes in those balances, and computes pension expense for 2018. (Enter credit amounts with a minus sign and debit amounts with a positive sign. Enter your answers in thousands (i.e. 200,000 should be entered as 200).)
Explanation / Answer
Answer:
The elements of pension plan are projected benefit obligation, plan asset, prior service cost, gains and losses, periodic pension expense and fund status of the plan. The projected benefit obligation includes accrued interest, revised estimates, plan amendments, and payment of benefits. The plan assets include charges due to investment returns, employer contributions, and the payment of benefits. These elements of the pension plan are interrelated among each other. These can be brought together usin Pension Spreadsheet.
Pension Spreadsheet:
Particulars($in,000s)
PBO
Plan Assets
Prior service cost-AOCI
Net Loss-AOCI
Pension Expense
Cash
Net Pension (liability)/Asset
Balance, Jan.1,2018
(4100)
4530
840
477
430
Service Cost
(332)
332
(332)
Interest Cost, 7%
(287)
287
(287)
Expected Return on Assets
453
(453)
453
Adjust for: Loss on assets
(53)
53
(53)
Amortization of:
Prior service cost
(70)
70
Net loss
(2)
2
Gain o PBO
44
(44)
44
Cash Funding
340
(340)
340
Retire Benefits
295
(295)
Balance Dec31,2018
(4380)
4975
770
484
238
595
Workings:
=7% X 4100=287
Particulars
Amount($ in 000s)
PBO, Dec 31
4380
Less: PBO, Jan 1
4100
Less: Interest Cost
287
Gain due to changes in actuarial assumption
44
Pension benefits paid ( end of the year)
295
Service Cost
332
3. Expected Rate on Assets=Plan assets X return on assets
= 4530 X 10%=453
4.Loss on Assets= Expected return on assets- Actual return on assets
=453-400=53
5.Prior Service Cost=(Prior Service Cost-AOCI)/Service Years
=840/12=70
6.Net Loss=(Net Loss-AOCI-Expected return on assets)/Service Life
=(477-453)/12=2
Abbreviations:
PBO- Projected Benefit Obligation
AOCI- Accumulated Other Comprehensive Income
OCI-Other Comprehensive Income
Particulars($in,000s)
PBO
Plan Assets
Prior service cost-AOCI
Net Loss-AOCI
Pension Expense
Cash
Net Pension (liability)/Asset
Balance, Jan.1,2018
(4100)
4530
840
477
430
Service Cost
(332)
332
(332)
Interest Cost, 7%
(287)
287
(287)
Expected Return on Assets
453
(453)
453
Adjust for: Loss on assets
(53)
53
(53)
Amortization of:
Prior service cost
(70)
70
Net loss
(2)
2
Gain o PBO
44
(44)
44
Cash Funding
340
(340)
340
Retire Benefits
295
(295)
Balance Dec31,2018
(4380)
4975
770
484
238
595
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