Intermediate Accounting

The deferred compensation obligation it has to its employees for their service under the terms of the pension

The employees bear part of the cost of the stated benefits or voluntarily make payments to increase their benefits.

Measured as the difference between the fair value of the plan assets and the projected benefit obligation.

• PBO > FV plan assets Underfunded
• PBO < FV plan assets Overfunded

- Plans that offer tax benefits

- permit deductibility of the employer's contributions to the pension fund and tax-free status of earnings from pension fund assets.

• The employer agrees to contribute to a pension trust
• a certain sum each period, based on a formula. This formula may consider such
• factors as age, length of employee service, employer’s profits, and
• compensation level. The plan defines only the employer’s contribution. It makes
• no promise regarding the ultimate benefits paid out to the employees. A common
• form of this plan is a 401(k) plan.

• Outlines the benefits that employees will receive
• when they retire. These benefits typically are a function of an employee’s
• years of service and of the compensation level in the years approaching
• retirement.

• Benefits that the employee is entitled to receive
• even if he or she renders no additional services to the company.

• Computed by using only vested benefits, at current
• salary levels

• a measurement of the pension obligation that uses
• both vested and nonvested years of service. The company computes the deferred
• compensation amount on all years of employees’ service – both vested and
• nonvested – using current salary levels.

• a measurement of the pension obligation that bases
• the deferred compensation amount on both vested and nonvested service using
• future salaries.

• the expense caused by the increase in pension
• benefits payable (the projected benefit obligation) to employees because of
• their services rendered during the current year. Actuaries compute service cost
• as the present value of the new benefits earned by employees during the year.

• An approach FASB invented to limit the growth of the
• Accumulated OCI account and for amortizing the account’s accumulated balance
• when it gets too large.

• Purpose is to administer terminated plans and to
• impose liens on an employer’s assets for certain unfunded pension liabilities.

• If a company terminates its pension plan, the PBGC can effectively impose a lien
• against the employer’s assets for the excess of the present value of guaranteed
• vested benefits over the pension fund assets