Accounting For PostEmployment Benefits

CHAPTER
Accounting for
Postemployment
Benefits
OBJECTIVES
After reading this chapter, you will be able to:
1.
Understand the characteristics of pension plans.
2.
Explain the historical perspective of accounting for pension plans.
3.
Explain the accounting principles for defined benefit plans, including computing pension expense
and recognizing pension liabilities and assets.
4.
Account for pensions.
5.
Understand disclosures of pensions.
6.
Explain the conceptual issues regarding pensions.
7.
Understand several additional issues related to pensions.
8.
Explain other postemployment benefits (OPEBs).
9.
Account for OPEBs.
10. Explain the conceptual issues regarding OPEBs.
20-1
SYNOPSIS
Characteristics of Pension Plans
1.
A pension plan requires that a company provide income to its retired employees in return for the
services they provided during their employment. A defined benefit plan either specifically states the
benefits to be received by employees after retirement or the methods of determining such benefits.
In contrast, under a defined contribution plan, the employer's contribution is based on a formula, and
future benefits are limited to an amount which the contributions and the returns earned on the
investment of these contributions can provide. Defined benefit plans are the primary focus of this
chapter.
2.
Under a funded pension plan, the company makes periodic payments to a funding agency which is
responsible for safeguarding and investing pension assets, and for making payments to retired
employees. The amounts needed to fund a pension plan are determined by actuaries using
compound interest techniques, projections of future events, and actuarial funding methods. Under an
unfunded plan, no such periodic payments are made. Instead, the payments to retired employees are
made from current resources. Although the Pension Reform Act of 1974 eliminated unfunded
company plans, some company plans are still underfunded and many governmental plans are
unfunded. A pension plan is contributory if employees are required to contribute a part of the cost,
and noncontributory if the total cost is paid by the employer. Corporate pension plans are usually
noncontributory.
3.
The operation of private retirement plans is regulated by the Employee Retirement Income Security
Act of 1974 (ERISA), also called the Pension Reform Act of 1974. In addition, most companies design
their plans to meet Internal Revenue Service requirements.
Accounting Principles for Defined Benefit Pension Plans

4.
20-2
The pension expense (net periodic pension cost) recognized by a company includes five components:
(a)
Service cost, the actuarial present value of the benefits attributed by the pension benefit
formula to service of employees during the current period (that is, the deferred compensation
for current services, to be paid to employees during their retirement).
(b)
Plus interest cost, the increase in the projected benefit obligation due to the passage of time.
(c)
Minus expected return on plan assets, the expected return or increase of plan assets due to
investment of the assets.
(d)
Plus or minus amortization of unrecognized prior service cost. Pension plans are often changed,
or amended. These changes are usually applied retroactively which increases or decreases the
benefits that will be paid to employees when they retire. Note that plan amendments usually
increase the projected benefit obligation, so that the amortization is usually added in the
computation of pension expense. However, some companies have amended their pension plans
to reduce pension benefits. In those cases the amortization is subtracted.
(e)
Plus or minus gain or loss, the amortized portion of any unrecognized net gain or loss from
previous periods. Gains and losses result from changes in actuarial assumptions and from
differences between the actual projected benefit obligation and the expected projected benefit
obligation. Amortization of an unrecognized gain or loss is included in pension expense when,
at the beginning of the year, the cumulative unrecognized net gain or loss from previous
periods exceeds 10% of the greater of the actual projected benefit obligation or the fair value
of the plan assets.
Chapter 20 Accounting for Postemployment Benefits
5.
Prior service cost is unrecognized. That is, it is not reported on the company's balance sheet as a
liability. It is, however, "recognized" by actuaries as a relevant cost, amortized in the future as a
component of pension expense, and disclosed in a note to the company's financial statements on the
schedule reconciling the funding of the plan with its balance sheet amounts.
6.
Service cost is affected by the discount rate chosen by the company. For example, a higher discount
rate decreases, and a lower discount rate increases, the present value of the service cost. The
discount rate, often called the settlement rate, varies with economic conditions.
7.
The pension expense that a company determines under GAAP may be different from the amount it
funds according to the rules of ERISA. If the expense recognized to date is greater than the amount
funded, the prepaid/accrued pension cost is reported as a liability on the company's balance sheet. If
the expense recognized to date is less than the amount funded, the prepaid/accrued pension cost is
reported as an asset on the company's balance sheet.
8.
The accumulated benefit obligation is the actuarial present value of the benefits attributed to
employee service prior to a specific date. Unlike the projected benefit obligation, the accumulated
benefit obligation is based only on past and current compensation levels and includes no assumptions
of future pay increases. The unfunded accumulated benefit obligation (the accumulated benefit
obligation minus the fair value of the plan assets) is a measure of a company's legal liability, and is
the minimum pension liability a company must report on its balance sheet.
9.
A company reports an additional pension liability if an unfunded accumulated benefit obligation exists
at the end of the period and (a) an asset has been recognized as prepaid/accrued pension cost; (b)
the liability already recognized as prepaid/accrued pension cost is less than the unfunded
accumulated benefit obligation; or (c) no prepaid/accrued pension cost has been recognized. This
additional liability usually is recorded when a company has a large, unrecognized prior service cost, or
has earned low or negative returns on its plan investments.
10.
If a company recognizes an additional pension liability, it reports deferred pension cost in an equal
amount as an intangible asset, unless the additional liability is greater than the amount of any
unrecognized prior service cost. Any excess of the additional liability over the unrecognized prior
service cost is reported as a component of other comprehensive income. Note that the additional
liability, the intangible asset, and the accumulated other comprehensive income are not amortized.
Rather, they are recalculated each year and reported on the balance sheet.
11.
GAAP requires that a company to disclose the following information about its defined benefit pension
plan(s):
(a)
a narrative description of investment policies and strategies, including target allocations for
each major category of plan assets and other factors that are pertinent to an understanding of
the investment goals, risk management strategies, and permitted and prohibited investments.
(b)
A narrative description of the basis used to determine the expected rate of return on plan
assets.
(c)
Other information that would be useful in understanding the risk associated with each asset
category and the rate of return on plan assets.
(d)
The benefits expected to be paid in each of the next five years, and the total for the next five
years.
(e)
The contributions to be made by the company to the plan in the next year.
20-3
(f)
A reconciliation of the beginning and ending balances of the projected benefit obligation,
including the amounts of the service cost, interest cost, actuarial gains and losses, benefits
paid, and plan amendments.
(g)
A reconciliation of the beginning and ending balances of the fair value of the plan assets,
including the actual return on plan assets, contributions by the company, and benefits paid.
(h)
The funded status of the plan, the amounts not recognized on the balance sheet, and the
amounts recognized on the balance sheet.
(i)
The amount of pension expense, including the service cost, the interest cost, the expected
return on plan assets, the amortization of any unrecognized prior service cost, the amortization
of any net gains or losses, and the amortization of any unrecognized transition obligation or
asset.
(j)
The discount rate, the rate of compensation increase, and the expected long-term rate of
return on the plan assets.
(k)
The amounts and types of securities included in the plan assets.
Conceptual Issues Related to Defined Benefit Plans

12.
The issues related to defined benefit pension plans can be placed into three general categories: (a)
pension expense; (b) pension liabilities; and (c) pension assets.
13.
The issue of pension expense involves decisions about the amount of cost to recognize and when to
report that amount as pension expense.
14.
Pension cost may consist of several components, including: (a) deferred compensation (service cost),
payments to be made to employees in the future in return for their current services; (b) interest cost
of the deferred compensation; (c) expected return on assets (generally a negative component of
pension cost); (d) prior service cost, the cost of retroactive benefits granted on initiation or
modification of a plan for employee services performed in previous years; and (e) gains and losses
resulting from both deviations between actual experience and the assumptions used, and changes in
assumptions about the future.
15.
Most changes in pension plans result in increases in future benefits. Four alternative methods have
been suggested to account for the prior service costs that result from pension plan modifications: (a)
The first alternative (the prospective method adopted in FASB Statement No. 87) requires that these
costs be expensed in the current and future periods, with no liability recorded when a cost arises. (b)
Under the second alternative, the total amount is recognized as an expense in the current period, and
a liability is recorded. (c) Under the third alternative, retained earnings is debited with a prior period
adjustment and a liability is recorded. (d) Using the fourth alternative, an intangible asset and a
liability of equal amount are recorded.
16.
Liabilities are probable future sacrifices of economic benefits arising from present obligations of a
company to transfer assets or provide services to other entities in the future as a result of past
transactions or events. In addition, a liability must be measurable to be reported on a companys
balance sheet.
17.
Five alternatives have been identified for meeting the above recognition and measurement criteria,
and for determining the extent of a companys pension plan liability.
20-4
18.
(a)
Contributions Based on an Actuarial Funding Method. Under this alternative, it is argued that
the employers obligation is to contribute to the plan, rather than directly to employees. The
liability is based on the actuarial cost method used for funding the plan.
(b)
Amount Attributed to Employee Service to Date. This alternative reflects the concept that the
pension obligation arises as the employees work, and that pension benefits are a form of
deferred compensation.
(c)
Termination Liability. This alternative limits the employers obligation to the amount that is
payable on termination of the plan. However, it can be argued that an assumption of
termination is not appropriate for a going concern.
(d)
Amount of Vested Benefits. A benefit is vested when an employee has the right to receive that
benefit regardless of future service. Under this alternative, the employers obligation is limited
to vested benefits, on the basis that nonvested benefits are contingent on and result from
future services.
(e)
Amount Payable to Retirees. Under this pay-as-you-go alternative, a readily measurable

liability is only recognized in the period in which it will be paid to employees.
Assets are probable future economic benefits obtained or controlled by a company as a result of past
transactions or events. Two alternative viewpoints exist concerning accounting for pension plan
assets. According to the first viewpoint (adopted in FASB Statement No. 87), funding discharges the
pension liability. Since pension plan assets held by the funding agency are, according to this
viewpoint, not assets of the employer, they should not be disclosed on the employers balance sheet.
According to the second viewpoint, the employers pension liability is not discharged until the retiree
receives the pension check. Proponents argue that the employer is at risk with regard to assets held
by the funding agency, and ultimately reaps the rewards of economic ownership of those assets.
Consequently, they say, plan assets should be disclosed on the employers balance sheet.
Additional Aspects of Pension Accounting

19.
The accounting specified in FASB Statement No. 87 for defined contribution plans is straightforward.
The pension expense is equal to the pension contribution required for that period. The journal entry is
a debit to Pension Expense and a credit to Cash for the contribution. Additionally, the company is
required to disclose (a) a description of the plan, and (b) the amount of pension expense recognized
during the period.
20.
Funding agencies, which administer pension plans, issue financial statements primarily to provide
information about each plans ability to pay benefits when due. FASB Statement No. 35 requires that
the annual financial statements issued by a funding agency for a companys pension plan include (a)
an accrual-basis financial statement presenting information about the net assets available for benefits
at the end of the plan year, (b) a financial statement presenting information about the changes
during the year in the net assets available for benefits, (c) information on the actuarial present value
of accumulated plan benefits at either the beginning or the end of the plan year, and (d) information
on the significant effects of factors affecting the year-to-year change in the actuarial present value of
accumulated plan benefits.
21.
The Employee Retirement Income Security Act of 1974 (ERISA) creates standards for the operation
and maintenance of pension funds and attempts to protect employees covered by pension plans. The
Act includes guidelines for employee participation in pension plans, vesting provisions, minimum
funding requirements, financial statement disclosure, and plan administration. Annual pension plan
reports must be filed with the Department of Labor.
20-5
22.
GAAP requires that the net gain or loss from the settlement or curtailment of a pension plan be
included by the employer in the net income of the period.
23.
Termination benefits are special benefits offered to induce employees to leave a company voluntarily.
GAAP requires that a company record a loss and a liability for termination benefits when (a) the
employee accepts the termination benefit offer, and (b) the amount can be reasonably estimated.
Other Postemployment Benefits

24.
In addition to pensions, many companies provide their employees two types of additional benefits:
(a) Postemployment benefits are provided to former employees after employment but before
retirement. A company accrues the cost of postemployment benefits during employment and
recognizes the amount as an expense and a liability if all the criteria for the recognition of
compensated absences are met. If not all of the criteria are met, the company records an expense
and a liability when the liability is probable and the amount can be reasonably estimated. (b)
Postretirement benefits or other postemployment benefits (OPEBs) are provided to employees after
retirement. The most significant OPEB is typically health care.
25.
GAAP requires that companies accrue the cost of OPEBs during the periods in which the employees
earn the benefits. Accounting principles for OPEBs closely parallel those for pensions.
26.
Three major differences exist between pensions and OPEBs (focusing on healthcare benefits): (a)
The beneficiary of a pension plan is usually the retired employee, while OPEBs are usually provided to
the retired employee, a spouse, and dependents; (b) A pension benefit is defined as a fixed amount,
paid monthly, while postretirement healthcare benefits are paid as used, with amounts varying
geographically; (c) Pension funding is legally required under ERISA, and contributions are tax
deductible, while OPEBs are generally not funded, because funding is not legally required and is not
tax deductible.
27.
Two concepts are necessary to an understanding of accounting principles for OPEBs:
28.
20-6
(a)
The expected postretirement benefit obligation (EPBO) is the actuarial present value on a
particular date of the benefits expected to be paid under the terms of the postretirement
benefit plan.
(b)
The accumulated postretirement benefit obligation (APBO) is the actuarial present value of the
benefits attributed to employee service to a specific date. On or after an employee's full
eligibility date, the expected and accumulated postretirement benefit obligation for that
employee are the same.
According to GAAP, the net postretirement benefit expense includes:

(a)
Service cost, the actuarial present value of the expected postretirement benefit obligation
attributed to services rendered by the employees during the current period.
(b)
Plus interest cost, the increase in the accumulated postretirement benefit obligation due to the
passage of time.
(c)
Minus expected return on plan assets, the fair value of the plan assets at the beginning of the
period multiplied by the expected long-term rate of return on plan assets. Unfunded plans, of
course, have no return on plan assets.
(d)
Plus or minus amortization of unrecognized prior service cost, where prior service cost is the
increase or decrease in the accumulated postretirement benefit obligation resulting from plan
amendments (and the initiation of the plan) not recognized in the period granted. This cost is
amortized by assigning an equal amount to each year of service remaining until full eligibility
for each employee active in the plan at the date of amendment. If all or almost all plan
participants are fully eligible, the prior service cost is amortized over the participants' life
expectancies. The amortization is added if benefits are increased, and subtracted if benefits are
decreased.
(e)
Plus or minus gain or loss, a change in the amount of the accumulated postretirement benefit
obligation due to experience different from assumptions or to changed assumptions. Gains and
losses may be amortized or recognized in the current year.
29.
The amount of the net postretirement benefit expense to date may be different than the amount
funded to date. For plans which are not funded, the liability, prepaid/accrued postretirement benefit
cost, is increased each period by an amount equal to the expense, and decreased by payments to
retired employees. However, in contrast to pension accounting, no "additional liability" is recognized.
30.
Accounting for OPEBs differs from pension accounting in the following ways:
(a)
Most pension plans tie benefits to years of service and salary levels, with the date of full
eligibility being the retirement date. However, for OPEBs the attribution period, which generally
begins with the date of hire or the date on which credited service begins, and ends on the date
of full eligibility, usually is completed before the retirement date.
(b)
There is no provision for recognition of a minimum OPEB liability, or a related intangible asset
or reduction in stockholders' equity.
(c)
The interest component of pension expense is based on the projected benefit obligation, while
the OPEB interest component is based on the accumulated postretirement benefit obligation.
Conceptual Evaluation of Accounting for OPEBs

31.
Accounting for OPEBs on the accrual basis enhances the relevance of a company's income statement.
However, implementation of the Statement created controversy. Opponents argue that OPEB costs
cannot be measured with sufficient reliability, and that the costs of implementation may exceed the
benefits.
32.
A company may recognize the OPEB transition liability either immediately or prospectively. These
recognition alternatives are inconsistent with the FASB policy of requiring retroactive adjustment for a
new accounting principle, and with the requirement to amortize unrecognized prior service cost for
pensions. In addition, the existence of the two alternatives decreases comparability among
companies.
33.
The expected postretirement benefit obligation is attributed to the periods of employee service up to
the date of full eligibility, while the obligation is measured to the expected retirement date. It can be
argued that ending the attribution period on the date of eligibility follows legal form rather than
economic substance.
34.
The adoption of FASB Statement No. 106 has had two major effects. First, the income statements
and balance sheets of many companies are significantly changed by the accrual of OPEBs. Second,
the accrual of OPEBs may influence management decisions about the level of benefits to provide
retirees.
20-7
SELF-EVALUATION EXERCISES
True-False Questions
Determine whether each of the following statements is true or false.
1.
2.
3.
4.
5.
6.
7.
20-8
Gains and losses may result from changes in

actuarial assumptions as to the future.
Answer: True
Under a defined benefit plan, the company

must make specified payments to the plan,
rather than pay specified pensions to retired
employees.
Answer: False
Funding agencies are typically responsible for

investing pension plan assets and for making
payments to retired employees.
Answer: True
When a pension plan is noncontributory, the

total cost is borne by the employer.
Answer: True
Vested benefits are not dependent on future

service by the employee.
Answer: True
According to GAAP, the pension expense for a

defined benefit plan is the contribution
required for the period.
Answer: False
Service cost is the present value of the

benefits attributed to current-period employee
services.
Answer: True
Gains and losses generally may occur from two

sources; (1) differences between the actual
projected benefit obligation and the expected
projected benefit obligation; and (2) from changes
in the assumptions that the actuaries use in the
calculation of the plan.
In a defined benefit plan the company is required
to make a specified, or defined, benefit payment.
In a defined contribution plan the company is
required to make a specified payment, or
contribution to the plan.
A third-party funding agency is responsible for
safeguarding and investing the assets of the
pension plan as well as paying retiree benefits.
Contributory or noncontributory refers to deposits,
or contributions, made by the employee to the
plan. In a contributory plan the employee pays, or
contributes to the plan, whereas in a
noncontributory plan the only payments made are
by the employer.
When an employee vests it means that they are
entitled to benefits in the future regardless of
whether they provide any future services.
Pension expense and the contribution made by
the company are usually not the same. This is
because the two items are controlled by different
rules and regulations. The amount of pension
expense is defined by FASB Statement No. 87,
whereas the funding or contribution must meet
the requirements of ERISA.
Service cost is the present value of the benefits
attributed to employees in the current period.
8.
GAAP recommends that the costs associated

with retroactively granted pension benefits be
amortized by assigning them to future periods
of service of participating employees.
Answer: True
Prior service cost is reported on the balance

sheet as an accrued liability.
Answer: False
10. The minimum pension expense required

under GAAP is the amount funded according
to the rules of ERISA.
Answer: False
11. If the pension expense recognized to date is

less than the amount funded, the prepaid
pension cost is reported as an asset.
Answer: True
12. When an unfunded accrued pension cost is

reported as a liability, deferred pension cost
must be reported in an equal amount as an
intangible asset.
Answer: False
13. When a company ends its defined benefit

pension plan, the net gain or loss from the
settlement of the plan is included in net
income for the period.
Answer: True
14. Interest cost, a component of pension

expense, is defined as the expected return on
plan assets plus an amortized portion of
unrecognized prior service costs.
Answer: False
15. Service cost is typically calculated for the

current year by multiplying the current
salaries of participating employees by the
projected interest cost of the plan.
Answer: False
9.
There are four methods that have been suggested

for the costs associated with prior service costs.
Amortizing them over future period is the method
outlined by GAAP.
Most items associated with pensions are not
reported on the balance sheet of companies. Prior
service cost is a component of the pension benefit
obligation, which is reported in the notes and on
the statements of the funding agency.
The rules for minimum funding are controlled by
ERISA and are not the same as the rules to
calculate minimum pension expense under GAAP.
If the pension expense is less than the amount
funded, the company has paid more into the plan
than necessary and has a prepaid, which is an
asset.
When accrued pension cost is reported as a
liability it means that pension expense has
exceeded the amount funded. This is only
reported as additional pension liability and
deferred pension cost when the fair market value
of the plan assets is less than the accumulated
benefit obligation.
When a company settles (terminates) or reduces
(curtails) their defined benefit plan, the
unrecognized net gain or loss that has not been
recognized as pension expense is reported in net
income for the period.
Interest cost is the increase in the pension benefit
obligation due to the passage of time and is not
the same as the expected return on plan assets.
Service cost is the present value of the benefits
that we will pay employees during their
retirement. It is calculated by multiplying the
annual benefits earned by the present value of an
annuity for the period of retirement by the present
value of $1 for the remaining period of
employment.
20-9
16. The cost of OPEBs is attributed by estimating

total benefits and assigning the total on the
straight-line basis to each year of employee
service.
Answer: False
17. Companies are not legally required to fund

OPEBs, and funded amounts are not tax
deductible.
Answer: True
18. The interest component of OPEB expense is

based on the accumulated postretirement
benefit obligation.
Answer: True
19. When an employee has reached the date of

full eligibility for OPEBs, the expected and
accumulated postretirement benefit obligation
for that employee are the same.
Answer: True
20. Accounting for OPEBs, like accounting for

pensions, provides for recognition of a
minimum OPEB liability and a related
intangible asset.
Answer: False
21. The OPEB expected postretirement benefit

obligation is measured by the periods of
employee service, but attributed up to the
date of full eligibility.
Answer: False
22. The expected return on plan assets is

calculated by multiplying the beginning fair
value of the plan assets by the expected longterm rate of return on the assets.
Answer: True
23. A company reports any excess of its additional

pension liability over its unrecognized prior
service cost as a component of other
comprehensive income.
Answer: True
20-10
The attribution period for OPEBs is usually begins

with the hiring date and continues until the
employee is eligible for full benefits.
There are several differences between pension
plans and OPEBs. One of these differences is that
funding for pension plans is legally required and
tax deductible while the funding of OPEBs is not
legally required and is not tax deductible.
The interest cost of the OPEB is the increase in
the accumulated postretirement benefit obligation
due to the passage of time.
Prior to full eligibility the accumulated
postretirement benefit obligation is a component
part of the expected postretirement benefit
obligation. However, once full eligibility has been
reached the accumulated and expected
postretirement benefit obligation are equal.
There is no provision in accounting for OPEBs that
provides for the recognition of a minimum liability.
The OPEB expected postretirement benefit

obligation is the actuarial present value on a
specific date of the benefits the company expects
to pay. The amount is measured based on the
benefits that employees will receive after their
expected retirement dates, not after their date of
full eligibility.
The expected return on plan assets is calculated
by multiplying the expected rate of return on the
assets by the amount of assets in the plan.
A company that has additional pension liability
that exceeds its unrecognized prior service cost
will report this excess as a component of other
comprehensive income.
Multiple Choice Questions

Select the one best answer for each of the following questions.
1.
2.
3.
Prior service cost of a pension plan

(a) is the pension cost assigned to years
preceding the beginning of a plan;
(b) is the total amount already paid out to
retired employees;
(c) is the cost of retroactively granted
benefits;
(d) is recognized by a prior period
adjustment at the inception of the plan.
Answer: (c) is the cost of retroactively granted

benefits;
Under a defined benefit plan, payments to

retired employees
(a) are determined by dividing available
pension assets among eligible retired
employees;
(b) are based only on the years of service of
each retired employee;
(c) are made by the employer, rather than a
funding agency;
(d) are computed by a stated method or are
specified in the pension agreement.
Answer: (d) are computed by a stated method

or are specified in the pension agreement.
Pension plans
(a) are contributory if the total costs are
borne by the employers;
(b) are noncontributory if the total costs are
borne by the employers;
(c) are regulated by the Federal Securities
Act of 1933;
(d) are typically accounted for on a pay-asyou-go basis.
Answer: (b) are noncontributory if the total

costs are borne by the employers;
Prior service cost is the cost of retroactively

(previously) granted benefits.
Choice (a) is incorrect because the pension cost
assigned to years preceding the beginning of the
plan is not included in the plan. Choice (b) is
incorrect because the total already paid to retired
employees is called benefits paid. Choice (d) is
incorrect because prior service cost is not
recognized by a prior period adjustment but is
amortized over the remaining service life of
employees in the plan.
Payments made to retired employees will be made

in accordance with the terms specified in the
pension agreement. These payments are usually
based on a specific formula that includes a set
percentage of salary per year of service.
Choice (a) is incorrect because under a defined
benefit plan the company is responsible for a set
payment that is not based on the assets in the
plan but instead is usually based on the years of
service and salary of the employee. Choice (b) is
incorrect because in addition to years of service
most plans include a component of salary. Choice
(c) is incorrect because most pension plans are
administered, which includes payments to retirees,
by a third-party funding agency.
Noncontributory means that employee is not

required to contribute to the plan, therefore the
employer bears all the responsibility to fund the
plan.
Choice (a) is incorrect because if the total cost of
the plan is borne by the employer, then the plan is
noncontributory. Choice (c) is incorrect because
pension plans are regulated by the Employee
Retirement Income Security Act (ERISA) of 1974.
Choice (d) is incorrect because pay-as-you-go
plans are considered unfunded and have been
eliminated under ERISA.
20-11
4.
5.
Which of the following does not describe a

necessary characteristic of a liability?
(a) a liability must entail a future
responsibility to be settled by the use or
transfer of present assets;
(b) a liability obligates the company, leaving
little or no discretion to avoid future
payment;
(c) a liability results from a transaction or
event that has already occurred;
(d) a liability must be measurable.
Answer: (a) a liability must entail a future

responsibility to be settled by the use or transfer
of present assets;
The Attilla Company provides a defined

benefit pension plan for its employees. At the
beginning of 2011 Attilla had a Prepaid
Pension Cost of $15,000, pension plan assets
of $50,000, and a projected benefit obligation
of $35,000. The service cost for 2011 was
$45,000, and the amount funded was
$40,000. The discount rate and expected (and
actual) rate of return on plan assets were
10%. At the end of 2011 Attilla reported
(a) interest cost of $5,000;
(b) prepaid pension cost of $15,000;
(c) pension expense of $43,500;
(d) prepaid/ accrued pension cost of
$18,500.
Answer: (c) pension expense of $43,500;
A liability does entail a future responsibility to be

settled by the transfer of assets, but those assets
are not required to be present. The assets may be
acquired in the future to settle the liability.
Choices (b), (c), and (d) are incorrect because
each of these items is a necessary characteristic of
a liability.
Pension expense consists of five components. The

question does not state anything about prior
service costs or unrecognized gains or losses, so
the only items that will go into pension expense
are service cost, interest cost, and expected return
on plan assets. Service cost is given as $45,000
and adds to pension expense. Interest cost is the
PBO ($35,000) times the discount rate (10%),
which is $3,500, and is also added to pension
expense. Expected return on plan assets is the
plan assets ($50,000) times the discount rate
(10%), which is $5,000. Expected return reduces
pension expense. Therefore pension expense is
$45,000 (service cost) + interest cost ($3,500)
expected return on plan assets ($5,000), which
equals $43,500.
Choice (a) is incorrect for two reasons. First the
interest cost for the year is $3,500 (discount rate
of 10% PBO of $35,000), and second; interest
cost is a component of pension expense and is not
separately reported. Choices (b) and (d) are
incorrect because prepaid pension cost would be
$11,500, not $15,000. Pension expense is $43,500
(see above). This is a debit entry. There will be a
credit entry of $40,000 for the contribution made,
leaving a credit of $3,500 to prepaid pension cost
to balance the equation. Since prepaid pension
cost is an asset, a credit of $3,500 will reduce the
balance to $11,500,
6.
20-12
Which of the following is not a component of

pension expense?
(a) amortization of an unrecognized net loss
for previous periods;
(b) the accumulated benefit obligation minus
the fair value of the plan assets;
(c) the expected return on plan assets;
(d) the interest cost of the projected benefit
obligation.
Answer: (b) the accumulated benefit obligation

minus the fair value of the plan assets;
The accumulated benefit obligation minus the fair
value of the plan assets is additional pension
liability, and not a component of pension expense.
Choices (a), (c), and (d) are incorrect because
each of these items is a component of pension
expense.
7.
At the beginning of 2011, the Golden

Company's actuary estimated the company's
total unrecognized prior service cost to be
$180,000. Golden expected the following
numbers of years of future service from its
seven employees:
Adkins-2; Bedford-2; Cleek-6; Dewey-8;
Everett- 10; Finley-5; Goode-3. Under the
years-of-future-service method, the amount of
amortization of unrecognized prior service
cost to be included in pension expense in
2013 is:
(a) $25,714;
(b) $25,000;
(c) $18,000;
(d) $36,000.
Answer: (b) $25,000;

Under the years-of-future service method we add
up the total years of service the employees have
remaining and find it is 36
(2+2+6+8+10+5+3=36). All seven of the
employees will be working the next two years
(2011 and 2012). Two will retire at the end of
2012; therefore in 2013 there will be five
employees working. Dividing the total years of
service (36) by the number of employees working
in 2013 (5) gives an amortization factor of 5/36.
The unrecognized prior service cost of $180,000 is
multiplied by the amortization fraction of 5/36 to
give us a 2013 amortization of prior service cost
equal to $25,000 ($180,000 5/36 = $25,000).
Choice (a) is incorrect because it just divides the
unrecognized prior service cost of $180,000 by the
seven workers. This does not take into
consideration the number of years each employee
works. Choice (d) is incorrect for a similar reason
as choice (a); except it uses the number of
employees working in 2012 (5) instead of the
number of employees working in 2013. Again, like
choice (a), choice (d) does not take into
consideration the number of years each employee
works. Choice (c) is incorrect because it uses the
number of years that the cost will be amortized
over (10) as the denominator and treats the
amortization as a straight-line problem. This
method does not weight each year by the number
of employees working in that year.
20-13
8.
Using the information given in number 7

above, the amount of unrecognized prior
service cost remaining on January 1, 2016 is:
(a) $15,000;
(b) $30,000;
(c) $45,000;
(d) $135,000.
Answer: (c) $45,000;

From number 7 above we found that the total
number of service years was 36. There were a
total of seven people working in 2011 and 2012;
therefore each of these years we would amortize
$35,000 ($180,000 7/36). In 2013, we have five
people working; therefore we would amortize
$25,000 ($180,000 5/36). In 2014 and 2015
there were four people working; therefore in each
of these years we would amortize $20,000
($180,000 4/36). Therefore up to the beginning
of 2016 we have amortized a total of $135,000
($35,000 (2011) + $35,000 (2012) + $25,000
(2013) + $20,000 (2014) + $20,000 (2015)). We
started with $180,000 of prior service cost to
amortize and we have amortized $135,000;
therefore we have $45,000 remaining to amortize
at the beginning of 2016.
Choice (a) is incorrect because this is the amount
that is amortized in 2016, not the amount
remaining to be amortized. Choice (b) is incorrect
because this is the amount of prior service
remaining to be amortized at the end of 2016, not
the beginning. Choice (d) is incorrect because this
is the amount of prior service cost that has been
amortized at the beginning of 2016, not the
amount remaining to be amortized.
20-14
9.
At the end of 2011, the Ipswich Company's

pension records showed the following:
Fair value of the plan assets

$500,000
Accumulated benefit obligation
600,000
Prepaid/accrued pension cost (liability)
25,000
Ipswich will report on its 2011 balance sheet:
(a) prepaid/accrued pension cost of
$25,000, projected benefit obligation of
$25,000, and additional pension liability
of $50,000;
(b) deferred pension cost of $25,000,
unrecognized prior service cost of
$25,000, and unfunded accumulated
benefit obligation of $50,000;
(c) deferred pension cost of $25,000 and
prepaid/accrued pension cost of
$25,000;
(d) deferred pension cost of $75,000, and
additional pension liability of $75,000.
10. Which of the following statements regarding

OPEBs is true?
(a) assumed healthcare cost trend rates are
a required disclosure;
(b) minimum liability for OPEBs and
pensions are calculated in the same
manner;
(c) funding of OPEB contributions are tax
deductible.
(d) retirees are the only beneficiaries of
OPEBs.
Answer: (d) deferred pension cost of $75,000,

and additional pension liability of $75,000.
The company has an unfunded accumulated
benefit obligation of $100,000. The unfunded
accumulated benefit obligation is the amount by
which the accumulated benefit obligation
($600,000) exceeds the fair value of the plan
assets ($500,000). The unfunded accumulated
benefit obligation is the minimum liability that a
company must recognize. Since the company has
already recognized a liability of $25,000 through
the liability portion of the prepaid/accrued pension
cost account, it must recognize an additional
liability of $75,000 to reach the minimum liability.
The entry to record the minimum liability consists
of a $75,000 credit to additional pension liability
and a $75,000 debit to an intangible asset account
called deferred pension cost.
Choice (a) is incorrect. The balance sheet will
report a $25,000 prepaid/accrued pension cost
liability of $25,000, but the pension benefit
obligation, regardless of the amount, will not
appear on the balance sheet. Also, as shown
above, the amount in the additional pension
liability account will be $75,000. Choice (b) is
incorrect because the deferred pension cost
intangible asset will be $75,000. Unrecognized
prior service cost has nothing to do with this
problem (except that the intangible asset cannot
exceed this amount), and is not reported on the
balance sheet. Unfunded accumulated benefit
obligation is not reported on the balance sheet.
Choice (c) is incorrect because the amount of
deferred pension cost and additional pension
liability is not correct as shown above.
Answer: (a) assumed healthcare cost trend
rates are a required disclosure;
GAAP requires disclosures for OPEBs that are
similar to disclosures for pension plans. In addition
the standard requires several disclosures for
OPEBs that are not required for pension plans.
Among these additional disclosures is one that
requires that the assumed healthcare cost trend
be disclosed.
Choice (b) is incorrect because there is no
requirement to calculate a minimum liability for
OPEBs. Choice (c) is incorrect because the
contribution a company makes for OPEBs is not
tax deductible. Choice (d) is incorrect because the
beneficiaries of most OPEBs are the retiree and
their spouse and dependents.
20-15
Problem Solving Guide

Example of Accounting for Pensions
Basic entries
The simple example below illustrates the basic accounting for pension expense. We will discuss each of
these items as we move through the problem solving guide. For now, just use these assumptions for 2011
to help us to illustrate basic pension journal entries.
Service cost
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of unrecognized prior service cost
Amortization of unrecognized net gain from previous periods
$50,000
8,000
5,000
4,000
1,000
Based on the above assumptions, the pension expense for 2011 is $56,000 ($50,000 + $8,000
$5,000 + $4,000 $1,000). If we assume that the company funded the pension plan in this
amount the journal entry to record pension expense is:
Pension Expense
Cash
56,000
56,000
If the company only funded a portion of the pension expense in 2011 the entry would look like
this:
Pension Expense
Prepaid/Accrued Pension Cost
Cash
56,000
5,000
51,000
The amount not funded is placed in the Prepaid/Accrued Pension Cost account. The entry to this
account was a credit because the cash was less than the calculated pension expense. This credit
entry to the Prepaid/Accrued Pension Cost account is a liability and represents the amount the
company owes to the pension plan. Had the company contributed cash in excess of the calculated
pension expense, a debit would have been used for the Prepaid/Accrued Pension Cost account:
Pension Expense
Cash
56,000
4,000
60,000
Where does pension expense come from?
20-16
1.
The first component of pension expense is service cost. Service cost is the amount of money
that employees will earn in the form of future pension payments based on the service they
provided this year. It includes actuarial estimates concerning numerous factors and is
discounted for future growth. In most problems this number will be given to you.
2.
After service cost we have interest cost on the projected benefit obligation (PBO). This is how
much the PBO has grown due to the passage of one year based on the discount rate that is
used for the calculation. You will probably be required to calculate this number by multiplying
the PBO at the beginning of the year by the given or assumed discount rate.
3.
Next is the expected return on plant assets. This is the amount that the company anticipates
that the plan assets will earn by investing the plan assets during the year. You will probably
also be required to calculate this number by calculating the beginning value of the plan assets
by the expected growth or return on the assets.
4.
Amortization of unrecognized prior service cost may or may not be present. This component
represents a portion of costs that arise from changes to the basic pension plan. When the plan
is changed it will usually result in either additional cost to the company or a reduction in cost to
the company. Rather than expense all of these costs in the current year, FASB has concluded
that these changes will affect the remaining service years of the pension plan participants and
should be amortized over their remaining service years. The calculation of how much to
amortize each year will discussed later in this chapter.
5.
The final component of pension expense is the amortization of unrecognized net gain or loss
from previous periods. Like prior service costs, this component may or may not be present.
Also like prior service cost, all of the gain or loss is not recognized in a single year, but is
amortized over the remaining service life if it meets the criteria for recognition that we will
discuss later.
Amortization of Unrecognized Prior Service Cost

In order to adequately amortize prior service cost we must determine a period for service life. Although a
straight-line approach can be used, the preferred method for amortization assigns an equal amount to
each future service period based on each active participating employee who is expected to receive future
benefits. The textbook refers to this method as the years-of-future-service method.
To keep the explanation simple we have limited the number of participants and the years remaining to
retirement. With the help of computers this method could be extended to a larger more realistic number.
In 2010 lets assume that we have four employees; Aaron, Brenda, Chuck, and Donna. Aaron is expected
to work another 6 years, Brenda 2 years, Chuck 4 years, and Donna 3 years. Therefore the total service
years expected from all four employees is 15 (6 + 2 + 4 + 3 = 15). We then calculate the amortization
fraction by counting the number of employees working in each year and dividing that by the total service
years we calculated above. In 2010, since all four employees will still be working the amortization fraction
will be 26.67% (4 employees 15 total service years).
Strategy: If the problem is small enough, a table approach is an easy way to see what is happening each
year. A table summarizing the example is given below.
Aaron
Brenda
Chuck
Donna
Total
Amortization Fraction
2010
1
1
1
1
4
26.67%
2011
1
1
1
1
4
26.67%
2012
1
2013
1
1
1
3
20.00%
1
2
13.33%
2014
1
2015
1
1
6.67%
1
6.67%
Total
6
2
4
3
15
Once we have determined an amortization fraction, we multiply the fraction by the total prior service cost
to obtain the amount of that cost to amortize in each year. If the prior service cost in our example had
been $25,000, then in 2010 we would amortize $6,667 of prior service cost ($25,000 26.67%).
The amount that we calculate is added to pension expense for that year.
20-17
Corridor calculations
Unrecognized gains or losses occur due to changes in the pension benefit obligation from changes in the
actuarial assumptions used to estimate the PBO or from experiences that are different than the
assumptions used, such as expected returns vs. actual returns on plan assets. If the assumptions used are
relatively accurate then there will only be relatively small unrecognized gains and losses. One would expect
that over time these gains and losses would even out and for this reason, relatively small unrecognized
gains and losses are not recognized as a component of pension expense each year. However, if the
unrecognized gains and losses become too large, a portion of them must be recognized. Therefore we must
establish what is considered too large and requires recognition. FASB has established that unrecognized
gains and losses that are within 10% of the PBO or plan assets, whichever is larger, are small enough to
forgo recognition. Therefore, once the unrecognized gains or losses exceed 10% of either the PBO or plan
assets, whichever is larger, some form of recognition is required. The 10% of the larger of the PBIO or plan
assets is called the corridor because it forms a limit for gains and losses around the actual PBO and plan
assets. The amount that is recognized is the amount of unrecognized gain or loss that exceeds the 10%
corridor amount divided by the average remaining service years. The determination of the corridor amount
and the amount of unrecognized gain or loss to recognize is accomplished at the beginning of the year.
Assume that we have a PBO at the beginning of the year of $850,000 and plan assets of $825,000. In
addition we have an unrecognized loss of $125,000 and an average service life of 5 years. Based on this
we have a corridor amount of $85,000, which is 10% of the larger of the PBO ($850,000) and the plan
assets ($825,000). Since the amount of unrecognized gain ($125,000) is greater than the 10% corridor
amount ($85,000) we will be required to amortize $40,000 ($125,000 $85,000). The amount of
unrecognized gain that will be amortized this year is $8,000 ($40,000 5 years average remaining service
life).
Strategy: Notice that the average remaining service life is used as the denominator to calculate the
amount to amortize in the current year for both the unrecognized gain or loss and
unrecognized prior service cost.
Additional Pension Liability

When a companys accumulated benefit obligation (ABO) exceeds the fair value of the plan assets, a
company is required to recognize an additional pension liability equal to the difference between the ABO
and the plan assets. The entry to record this additional pension liability would include a credit to additional
pension liability and a debit to an intangible asset account called deferred pension cost. If, however, the
company has already recognized a liability through the Prepaid/Accrued Pension Cost account, this amount
of liability reduces the amount of additional pension liability to recognize. On the other hand if the
company has recognized an asset through the Prepaid/Accrued Pension Cost account, this amount will be
added to the additional pension liability that must be recognized.
The above paragraph assumes that the unrecognized prior service costs exceed the additional pension
liability. If there is no unrecognized prior service cost or the additional liability is greater than the
unrecognized prior service cost then the debit to the intangible asset account deferred pension cost will be
limited to the amount of the unrecognized prior service cost. The amount by which the minimum pension
liability exceeds the unrecognized prior service cost is debited to an account called excess of additional
pension liability over unrecognized prior service cost. This in turn reduces other comprehensive income.
20-18
As an example, lets assume that a company has an unfunded accumulated benefit obligation of $510,000
and the fair value of the plan assets is $475,000, with an unrecognized prior service cost balance of
$50,000. The additional pension liability would be $35,000 ($510,000 $475,000). Since the additional
pension liability is less than unrecognized prior service costs, the journal entry to record the additional
pension liability and intangible asset is:
Deferred Pension Cost
Additional Pension Liability
35,000
35,000
Without changing any of the assumptions above, lets assume that the company also has a credit balance
of $8,000 in the prepaid/accrued pension cost account. A credit balance in this account means that the
company has already recognized a portion of the required additional pension liability; therefore the
company will only need to recognize an additional pension liability of $27,000 ($35,000 we calculated
above the $8,000 credit balance in the prepaid/accrued pension cost account). If the prepaid/accrued
pension cost account had been a debit balance instead of a credit balance the amount would have been
added to the additional pension liability amount that we calculated above.
Test Your Knowledge

1.
Information about the Jefferson Company's defined benefit pension plan is shown below:
Service cost
Plan assets (beginning of year)
Amount funded (end of year)
Projected benefit obligation (beginning of year)
End-of-year payments to retired employees
Discount rate
Expected (and actual) rate of return
Amortization of unrecognized net loss
2011
2012
2013
$490,000
800,000
500,000
750,000
40,000
10%
10%
3,000
$ 550,000
?
550,000
1,275,000
60,000
10%
8%
2,100
$ 600,000
?
620,000
1,892,500
100,000
10%
9%
2,000
Required
Prepare the journal entries needed to record the Jefferson Company's pension expense and pension
funding at the end of 2011, 2012, and 2013.
20-19
2.
The Wingador Company established a defined benefit pension plan at the beginning of 2011. Prior
service costs at that time were estimated to be $135,000. Information about the plan is given below.
Discount rate used by Wingador:
Expected (and actual) return on plan assets:
Service cost
Amounts paid to funding agency at year end
Amounts paid by funding agency to employees
at year end
Projected benefit obligation at beginning of year
Accumulated benefit obligation at end of year
10%
8%
2011
2012
2013
$ 10,000
50,000
$ 15,000
50,000
$ 25,000
40,000
18,500
135,000
130,000
5,000
16,000
140,000
134,500
10,000
20,000
153,000
146,950
15,000
Required
3.
(a)
Determine Wingador's pension expense for 2011.
(b)
Prepare the journal entry used to record Wingador's pension expense and funding in 2012.
(c)
Show any pension amounts that would be reported on Wingador's 2013 balance sheet.
The Wylie Company initiated a defined benefit pension plan on January 1, 2011. Unrecognized prior
service cost resulting from retroactive benefits awarded to the six participating employees were
determined to be $400,000 at that time. The expected years of future service of the six employees
are shown below:
Employee
Expected Years of
Future Service
U
V
W
X
Y
Z
6
6
5
4
3
1
Wylie will amortize the unrecognized prior service cost using the years-of-future-service method.
Required
Prepare schedules showing (a) the amortization fraction for each year and (b) the amount of
amortization of prior service cost for each year.
20-20
ANSWERS TO TEST YOUR KNOWLEDGE

1.
2011:
Pension Expense
Cash
488,000
12,000
500,000
2012:
Pension Expense
Cash
572,400
22,400
550,000
2013:
Pension Expense
Cash
616,092
3,098
2011
620,000
2012
2013
Service cost
Interest cost
Amortization of unrecognized net loss
Pension expense
$ 490,000
75,000
(80,000)
3,000
$ 488,000
$ 550,000
127,500
(107,200)
2,100
$ 572,400
$ 600,000
189,250
(174,348)
2,000
$ 616,902
Plan assets (beginning of year)

Funded (end of year)
Payments (end of year)
Actual return on plan assets
Plan assets (end of year)
$ 800,000
500,000
(40,000)
80,000
$1,340,000
$ 1,340,000
550,000
(60,000)
107,200
$ 1,937,200
$ 1,937,200
620,000
(100,000)
174,348
$ 2,631,548
20-21
2.
(a)
(b)
(c)
2011
Service cost
Interest cost (0.10 $135,000)
2011 pension expense
2012
Pension Expense
Cash
$10,000
13,500
5,000
$28,500
36,480
13,520
50,000
*Service cost
Expected return on plan assets [0.08 ($50,000 $18,500)]
2012 Pension expense
$15,000
14,000
(2,520)
10,000
$36,480
Prepaid/accrued pension cost

Additional pension liability
Deferred pension cost (intangible asset)
$25,162*
78,650**
78,650***
*Prepaid/accrued pension cost

2011 ($50,000 $28,500) =
2012 ($50,000 $36,480) =
2013 ($40,000 $49,858a) =
Balance of prepaid/accrued pension cost
$21,500
13,520
(9,858)
$25,162
2013 Pension Expense:

Service cost
{0.08 [($50,000 $18,500) + ($50,000 $16,000 + $2,520)]}
2013 Pension expense
$25,000
15,300
(5,442)
15,000
$49,858
**Additional pension liability = Accumulated benefit obligation

Fair value of plan assets /+ Prepaid/accrued pension cost
(credit balance/debit balance) = $146,950 $93,462a + $25,162 = $78,650.
a[($50,000
- $18,500) 1.08 + ($50,000 $16,000)] 1.08 +$40,000 $20,000
***Deferred pension cost, an intangible asset, is reported on the

balance sheet at an amount equal to the Additional Pension
Liability.
20-22
3.
(a)
U
V
W
X
Y
Z
2011
1
1
1
1
1
1
6
2012
1
1
1
1
1
+
6/25
(b)
Year
2011
2012
2013
2014
2015
2016
2013
1
1
1
1
1
+
5/25
5/25
2014
1
1
1
1
2015
1
1
1
4/25
3
3/25
Amortization to
Total Unrecognized Amortization
Increase
Prior Service Cost
Fraction Pension Expense
$400,000
400,000
400,000
400,000
400,000
400,000
6/25
5/25
5/25
4/25
3/25
2/25
$96,000
80,000
80,000
64,000
48,000
32,000
2016
1
1
25
2/25
Remaining
Unrecognized
Prior
Service Cost
$304,000
224,000
144,000
80,000
32,000
0
20-23

Accounting For PostEmployment Benefits

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Accounting For PostEmployment Benefits

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CHAPTER

Understand the characteristics of pension plans.

Explain the historical perspective of accounting for pension plans.

Account for pensions.

Understand disclosures of pensions.

Explain the conceptual issues regarding pensions.

Understand several additional issues related to pensions.

Explain other postemployment benefits (OPEBs).

Account for OPEBs.

10. Explain the conceptual issues regarding OPEBs.

Accounting Principles for Defined Benefit Pension Plans

Chapter 20 Accounting for Postemployment Benefits

Chapter 20 Accounting for Postemployment Benefits

The amounts and types of securities included in the plan assets.

Conceptual Issues Related to Defined Benefit Plans

Chapter 20 Accounting for Postemployment Benefits

Amount Payable to Retirees. Under this pay-as-you-go alternative, a readily measurable

Additional Aspects of Pension Accounting

Chapter 20 Accounting for Postemployment Benefits

Other Postemployment Benefits

Two concepts are necessary to an understanding of accounting principles for OPEBs:

According to GAAP, the net postretirement benefit expense includes:

Chapter 20 Accounting for Postemployment Benefits

Conceptual Evaluation of Accounting for OPEBs

Chapter 20 Accounting for Postemployment Benefits

Gains and losses may result from changes in

Under a defined benefit plan, the company

Funding agencies are typically responsible for

When a pension plan is noncontributory, the

Vested benefits are not dependent on future

According to GAAP, the pension expense for a

Service cost is the present value of the

Gains and losses generally may occur from two

Chapter 20 Accounting for Postemployment Benefits

GAAP recommends that the costs associated

Prior service cost is reported on the balance

10. The minimum pension expense required

11. If the pension expense recognized to date is

12. When an unfunded accrued pension cost is

13. When a company ends its defined benefit

14. Interest cost, a component of pension

15. Service cost is typically calculated for the

Chapter 20 Accounting for Postemployment Benefits

There are four methods that have been suggested

16. The cost of OPEBs is attributed by estimating

17. Companies are not legally required to fund

18. The interest component of OPEB expense is

19. When an employee has reached the date of

20. Accounting for OPEBs, like accounting for

21. The OPEB expected postretirement benefit

22. The expected return on plan assets is

23. A company reports any excess of its additional

The attribution period for OPEBs is usually begins

The OPEB expected postretirement benefit

Chapter 20 Accounting for Postemployment Benefits

Multiple Choice Questions

Prior service cost of a pension plan

Answer: (c) is the cost of retroactively granted

Under a defined benefit plan, payments to

Answer: (d) are computed by a stated method

Answer: (b) are noncontributory if the total

Chapter 20 Accounting for Postemployment Benefits

Prior service cost is the cost of retroactively