How to calculate whether or not the plan asset is overfunded or underfunded?
A company’s funding status will relate to the required disclosure that companies must make regarding the status of its existing pension funds. The funded status of a pension plan will be computed as follows:
Overfunded status: If the fair value of the plan’s assets are greater than the projected benefit obligation, the funded status will be listed as “overfunded”. Overfunded plan asset status will always be reported as a noncurrent asset on the balance sheet.
Underfunded status: If the fair value of the plan’s assets are less than the projected benefit obligation, the funded status will be listed as “underfunded”. Underfunded plan assets can either be reported as current or noncurrent liabilities.
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How to calculate the fair value of the pension plan asset?
The fair value of plan assets represents the cumulative investments (plan assets) that are being held for retiree’s (employees) and will be paid out once the pension allows for it. The formula below illustrates how to calculate the ending fair value of plan assets, which would be recorded on the asset section of the balance...
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How to calculate the project benefit obligation?
Basically, you need to roll forward the obligation balance from the beginning of the year (i.e. which equals end of prior year), and then factor in the items listed in the rollforward below. That will get you to your ending PBO, and that is what is recorded on the balance sheet as the ending liability...
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What items increase the pension benefit obligation and what items decrease the pension benefit obligation?
There are five main items that either increase the PBO (increase the liability) or decrease the PBO (decrease the liability. The items that will increase the PBO include interest cost, service cost, and actuarial losses. The items that decrease the PBO (reduce the liability) include actuarial gains and benefits paid to retirees.
How to calculate the fair value of the pension plan asset?
The fair value of plan assets represents the cumulative investments (plan assets) that are being held for retiree’s (employees) and will be paid out once the pension allows for it. The formula below illustrates how to calculate the ending fair value of plan assets, which would be recorded on the asset section of the balance...
How to calculate the project benefit obligation?
Basically, you need to roll forward the obligation balance from the beginning of the year (i.e. which equals end of prior year), and then factor in the items listed in the rollforward below. That will get you to your ending PBO, and that is what is recorded on the balance sheet as the ending liability...
What items increase the pension benefit obligation and what items decrease the pension benefit obligation?
There are five main items that either increase the PBO (increase the liability) or decrease the PBO (decrease the liability. The items that will increase the PBO include interest cost, service cost, and actuarial losses. The items that decrease the PBO (reduce the liability) include actuarial gains and benefits paid to retirees.
