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Pension Funding

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Penny Pincher Company has a defined benefit pension plan for its employees. The
following pension data are available at year end (in millions):
Accumulated benefit obligation $142
Projected benefit obligation 205
Fair value of plan assets 175
There is no balance in prepaid/accrued pension costs.
Required:
a. Calculate the funded status of the plan (see SFAS No. 158 for a definition of funded status). Is the plan overfunded or underfunded?

b. If the projected benefit obligation provides the appropriate measure of the company's obligation for pension benefits and the assets in the fund are viewed as satisfying all or part of that obligation, what is Penny Pinchers liability, if any, for the pension plan at year-end?

Explain, citing the Conceptual Framework's definition of liabilities in your explanation.

c. What amount will Penny Pincher have to report in its balance sheet? Is it an asset or a liability?

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Penny Pincher Company has a defined benefit pension plan for its employees. The
following pension data are available at year end (in millions):
Accumulated benefit obligation $142
Projected benefit obligation 205
Fair value of plan assets 175
There is no balance in prepaid/accrued pension costs.

Required:
a. Calculate the funded status of the plan (see SFAS No. 158 for a definition of funded status). Is the plan overfunded or underfunded?

The funded status of the plan according to SFAS No. 158 is the difference between the fair value of the plan assets and the projected benefit obligations(1). As the projected benefit obligations of the pension plan is $205 million less $175 million, which is $30 million. The funded status of the plan in accordance with $FAS No. 158 is $30 million.

b. If the projected benefit obligation provides the appropriate measure of the company's obligation for pension benefits and the ...

Solution provided by:
Hatim Baxamusa, MBA
Education
  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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