The unionized plan is a defined-benefit plan, and the amount reported on the balance sheet is normally the net of the fair value of plan assets less the present value of defined-benefit obligation ($16.6 – $15.5 = $1.1 million). However, if the plan has a surplus, as this one does, the net pension asset is subject to a ceiling defined as the present value of available refunds and reductions in future contributions, which in this plan is $500,000.
What does the bolded part mean, is there a ceiling for net plan assets!!
If the plan has a deficit, an amount equal to the net underfunded pension obligation is reported on the balance sheet as a net pension liability. If the plan has a surplus, an asset equal to the overfunded pension obligation is reported on the balance sheet as a net pension asset (except that the amount of reported assets is subject to a ceiling defined as the present value of future economic benefits, such as refunds from the plan or reductions of future contributions). Disclosures in the notes provide additional information about the net pension liability or asset reported on the balance sheet.
(Institute 77)
Institute, CFA. 2018 CFA Program Level II Volume 2 Financial Reporting and Analysis. CFA Institute, 07/2017. VitalBook file.
The citation provided is a guideline. Please check each citation for accuracy before use.
Both IFRS and US GAAP require companies to report on their balance sheet a pension liability or asset equal to the projected benefit obligation minus the fair value of plan assets. The amount of a pension asset that can be reported is subject to a ceiling.
(Institute 106)
Institute, CFA. 2018 CFA Program Level II Volume 2 Financial Reporting and Analysis. CFA Institute, 07/2017. VitalBook file.
The citation provided is a guideline. Please check each citation for accuracy before use.
Just bump into your thread while searching for answers over here.
You could also refer to the curriculum Vol II, page 77 example one. I think the keyword for the asset ceiling is “future refunds and reduction in future contributions is $XXX”