Pension

[Thecodont]

Having a hard time thinking about the recocile of PBO and the pension expense. Pension expense includes current service cost and interest expense. If these are expensed the why do they also show up as part of the liability PBO?
To me that sounds like we are both expensing the items and capitalzing them. I am obviously missing something

 

[Marymay]

There would be no PBO in case of defined contribution plans. But in defined benefit the employer has an obligation to pay sertain amount of money in FUTURE. and these expenses alow to allocate cost during the periods employees work and increase PBO to the amount defined. If you would decrease the PBO by these expenses, than on the BS (through funded status)there would not be a true representation of obligation, because employer still will have to pay the defined amount of money =PV of future benefits(PBO). My opinion)

 

[Factor hedge]

well , I think you are mixing up a bit here , Only the net pension asset or liability (Funded status - unrecognised acturial gain or + unrecognised acturial loss+ Unrecognised prior service cost ) is reported in the B/S .
The PBO adjustment and reconciliation are shown in the footnotes
Past service cost is reported in OCI and are amortised over a period of time and reported as a component of pension expense
Under IFRS unrecognised acturial gains and loss are reported in OCI .
Hope I have not confused you

 

[Marymay]

bu anyways PBO increases, and that is reflected in funded status)

 

[Thecodont]

Factor hedge wrote:
well , I think you are mixing up a bit here , Only the net pension asset or liability (Funded status - unrecognised acturial gain or + unrecognised acturial loss+ Unrecognised prior service cost ) is reported in the B/S .
The PBO adjustment and reconciliation are shown in the footnotes
Past service cost is reported in OCI and are amortised over a period of time and reported as a component of pension expense
Under IFRS unrecognised acturial gains and loss are reported in OCI .
Hope I have not confused you

Thanks for your help. Here is what is confusing. Using US GAAP funded status if FV of plan assets - PBO
PBO is Open PBO + Service Cost + Interest Cost +- Unamortized AGL and + Unamort Prior Service costs
The balance sheet entry is a net of the liability (PBO) and the asset (FV plan assets).
Pension expense is Current Service Cost + Interest expense +- Amortized AGL + amortized prior service cost - expected return on assets
You can see that Service Cost and Interest cost are include both in the PBO and the income statement expense item. How can that be? When you expense and item you reduce a liability. What am I missing here.

 

[cpk123]

do you also see somewhere that the entire pension expense feeds into the Net Income which goes thro to the Balance sheet as Equity and A = L + E….
PBO is just like you remember from your Leases - there is a Current Portion of the Lease Liability and a Accumulated Portion. Accumulated Portion of Service Cost = PBO which gets used to calculate the Net Asset / Liability on the Balance Sheet. The Current Portion of Service goes into the Income Statement towards the Pension Expense.

 

[Thecodont]

i think i see now. the expense is onlyy the period portion of int exp and current service cost. Since the PBO reconciliation starts with open PBO then for all but the first year the prior current service cost and int expence is already in opening PBO

 

[1logic]

cpk123 wrote:
do you also see somewhere that the entire pension expense feeds into the Net Income which goes thro to the Balance sheet as Equity and A = L + E….
PBO is just like you remember from your Leases - there is a Current Portion of the Lease Liability and a Accumulated Portion. Accumulated Portion of Service Cost = PBO which gets used to calculate the Net Asset / Liability on the Balance Sheet. The Current Portion of Service goes into the Income Statement towards the Pension Expense.

This really made the difference clear. Good post.