ACC 3302 Ch. 20 Updated Version
Terms
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- an arrangement whereby an employer provides benefits (payments) to retired employees for services they provided in their working years
- Pension Plan
- In this, the employer agrees to contribute to a pension trust a certain sum each period, based on a formula
- Defined-contribution plan
- Make predictions of mortality rates, employee turnover, interest and earnings rates, early retirement frequency, future salaries, and any other factors necessary to operate a pension plan
- Actuaries
- The deferred compensation obligation it has to its employees for their service under the terms of the pension plan
- Pension obligation
- The present value of vested and nonvested benefits accrued to date, based on employees' future salary levels
- Projected Benefit Obligation
- The amount payable adjusted to reflect the time value of money and the probability of payment between the present date and the expected date of payment
- Actuarial Present Value
- The expense caused by the increase in pension benefits payable (the PBO) to employees because of their services redered during the current year.
- Service Cost
- Accrues each year on the projected benefit obligation just as it does on any discounted debt
- Interest Expense
- Allocates the cost (PSC) of providing these retroactive benefits to pension expense in the future, specifically to the remaining service years of the affected employees
- Amortization of Prior Service Cost
- The increase in pension funds from interest, dividends, and realized and unrealized changes in the fair-market value of the plan assets
- Actual Return on the Plan Assets
- Sets a limit of 10% of the larger of the beginning balances of the PBO or the market-related value of the plan assets. Above that amount the Accumulated OCI account is considered too large and must be amortized
- Corridor Amortization Approach
- A deferred compenation arrangement whereby an employer promises to exchange future benefits for employees current services. Include health care benefits, educational benefits, advisory services, etc.
- Post-retirement Benefit Plan
- A plan in which the employers contribution is determined based on a specified formula, and any future benefits are earned on the investment of those contributions
- Defined Contribution Plan
- A plan that states the benefits to be received by the employees after retirement or the method of determining such benefits
- Defined Benefit Plan
- A plan in which the company makes periodic payments to a funding agency that assumes the responsibilty for safeguarding and investing the pension assets to earn a return on the investments for the pension plan, and for making payments to the recipients o
- Funded Plan