Pension accounting US GAAP

CFA Level II
#1

In the Kaplan schweser video on total pension cost calculations under US GAAP, there is a OCI calculation of $101.

Service cost $8000

Interest cost $13250 [$132500 Beg PBO X 10%]

Exp Return ($9576) [$79800 FV of planned asset X 12%]

Prior SC $100 [$2000/20 yrs = 100]

Acturial G/L $ 375 [$7500/20 yrs = 375]

Pension Exp $12,149

OCI $ 101

Tot Pen Cost $12,250

This has been arrived upon by the following method

OCI CALCULATIONS:-

Amortized loss (375) [7500 Amortized over 20 years being the 10% corridor difference between Begining Unamortized loss $20750 - $13250 (PBO* Discount rate)]

Unrecognized gain (1424) [$11000 actual return - $9576 expected return]

Unregonized loss 1900 [$2,000 prior service cost - $100 Amortized (taken to I/S)]

OCI Net change 101

What is confusing is that while doing OCI calculaitons the amortized acturial Loss of $375 is used to reduce OCI, while it is clearly taken into the income statement as an Amortized loss.

Could someone help me and save my Soul :slight_smile: !! Thanks a ton in advance !!

#2

In terms of actuarial G/L, these are recognized in OCI for IFRS, and for US GAAP they are recognized in OCI unless they exceed the 10% corridor (10% of the greater of PBO or plan assets), then this is taken to the income statement (for GAAP only)

#3

Get that completely. Under US GAAP, If the unamortized loss exceeds the 10% corridor of (PBO or Plan Assets, since it is a loss calculation we use PBO), we take that amount (Actuarial loss) to the I/S and amortize it over the service life of the employee in this case 20 years. Since in this case it exceeded 10%, the amortized loss hits the I/S. Now while calculating OCI, why is the amortized loss of $375 considered, since that amount has already gone through the I/S. Thanks for the reply!