whats the point of learning this??? hardly any companies offer Defined Benefit Plans anymore. they are becoming obsolete. what a waste of friggin brain space…
Even more confusing to me is the PBO calculation: We consider the expected salary at the retirement date in future however the number of years used in the calculation are the actual years of service (that is years of service till date) To me this is half hearted projection of future obligation…Why do we not include assumed years of service as well?Because the salary will not reach the expected figure unless the empolyee is in service for all those future years… Where am I going wrong?
SkipE99 Wrote: ------------------------------------------------------- > whats the point of learning this??? hardly any > companies offer Defined Benefit Plans anymore. > they are becoming obsolete. what a waste of > friggin brain space… ha…don’t be so quick to judge that. With the new adminstration, pension can easily coming back as a “requirement” for business.
AJ, The PBO calculation is an attempt to get at an “accrual” method of posting liabilities to the BS; if all assumptions are met, then as you accrued your Service cost, plus past “service” PBO, you will have total PBO at retirement. You could think of PBO at any point in time as (Total Service&Pay PBO) * current svc / project service; then service cost = Total PBO / projected service…as you add on Service cost you get to “total PBO”. Another way to think of it is that if you booked PBO including all future pay and service, your obligation would be fully accrued and you wouldn’t have a service cost …it’s definitely not a perfect measure and it will probably be changed in a few years, but that was the thinking when it was implemented.
There are still about 29,000 or so pension funds in the US so they will and do show up on balance sheets. Moreover, companies still need to make annual contributions to keep up the funded status as well as manage the long term liabilities. So, I wouldn’t say that understanding pension accounting is any more or less significant than many of the other less common analytics throughout the curriculum. Yeah, I work in the pension industry.