My last question… When they say “Unrecognized actuarial gains total 12 million and unrecognized prior service cost is 27 million,” I’m under the impression that i) the older pension standard, you can ignore the recognized gains/costs. Another words, you will have an unrecognized component, because you can, essentially, ignore this. ii) However, the newer standard, you *must* include the gains/costs. Therefore, you *MUST* factor in the unrecognized actuarial gains and prior service costs. However, I’m under the impression from below that the 85 *ALREADY INCLUDES* the 12m in UAG and 27 for UPS. Therefore, although it’s called as “unrecognized”, that name is a misnomer. It *IS* recognized, even though it’s called unrecognized. Finally, I never could understand why, using new standards - where you must factor in the unrecognized G/Ls (i.e. recognize it), the pension plan should be 100Million underfunded. -85 + 12 (we’re *RECOGNIZING The Unrecognized actuarial gains, which recognizes this gain) - 27 (we’re recognizing the prior service costs, which were previously ignored, and this is a negative, since it’s a cost) = -100. ABC Company pension plan on December 31, 2005 is underfunded by 85 million. Unrecognized actuarial gains total 12 million and unrecognized prior service cost is 27 million. What is the amount of the pension liability on ABC’s balance sheet on dec. 31, 2005, assuming the financials were prepared according to U.S. GAAP under the: Old Pension Standards? New Pension Standards?
please help me here
Please…it’s saturday night (sunday morning), and this question is on my mind.
ABC Company pension plan on December 31, 2005 is underfunded by 85 million. Unrecognized actuarial gains total 12 million and unrecognized prior service cost is 27 million. What is the amount of the pension liability on ABC’s balance sheet on dec. 31, 2005, assuming the financials were prepared according to U.S. GAAP under the: Old Pension Standards? New Pension Standards? Old Pension Standards (pre-FASB 158): Pension liability = 85 - 12 + 27 = 100 New Pension Standards (post-FASB 158): Pension liability = 85 (the unrecognized items are in “other comprehensive income” - part of equity, and nobody gives a damm about those) From http://sec.edgar-online.com/2005/03/04/0001047469-05-005436/Section19.asp : Funded (under funded) status of 98,171 141,556 (191,540 ) (187,146 ) the plans Unrecognized net actuarial loss 803,490 774,237 31,997 30,215 Unrecognized prior service cost (16,918 ) (23,368 ) (12,754 ) (19,842 ) Unrecognized transition asset (6 ) (11 ) - - Prepaid (accrued) benefit cost 884,737 892,414 (172,297 ) (176,773 )
The $85 million underfunded liability is just: Plan Assets - PBO = funded status (-$85) This is the economic liability of the plan. It is before any adjustments for Deferred items like the Unrecognized items in the question. Under the new standards, since FASB wants the liability for pensions benefits on the balance sheet to reflect the underlying economics, the $85m underfunded liability is entered directly on the balance sheet as the pension liability. This was not true under the old standards which allowed recognition of the deferred items and normally had the result of reducing the pension liability. Under the old standards you would adjust the funded status: Plan assets - PBO ----------- =-$85 million funded status Then: -$85 -$27 service cost +12 gain --------- -$100m pension liability on balance sheet In this example, the old standards make the liability appear worse so it’s not as intuitive as it could be. For further clarification take a look at CFAI Book #2 on pages 137-138 and it will be clear. Trader/God
^^ I think you have the signs the other way round. under the old standard you would have takent the Funded Status and ADDED your service cost and DEDUCTED your gain so under the old standard your liability would have been -85+27-12 = -70 or $70 in liability… look at above posts by zimzim
That’s why I get for not reading the thread before posting! Thanks mumu - T/G