Penny Pincher Company

Penny Pincher Co defined benefit pension plan: Calculate funded status, obligation

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 definition under ASC (was old SFAS 158 for 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 Pincher’s liability, if any, for the pension plan at year-end? Briefly 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 liability?

ANSWER

a. Calculate the funded status of the plan (see definition under ASC (was old SFAS 158 for funded status). Is the plan overfunded or underfunded?

The overfunded or underfunded status is measures as the difference between the projected benefit obligation and the fair value of the assets at the period end date.

The accumulated benefit obligation does not include the present value of the future benefits for non-vested employees. FASB requires that the funding status be determined using the projected benefit obligation that includes the non-vested benefits.

Fair value of assets. $175

Projected benefit obligation $205

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Under funded $30

b. If the projected benefit obligation provides...