Actuaries make predictions (called actuarial assumptions) of mortality rates, employee turnover, interest and earnings rates, early retirement frequency, future salaries, and any other factors necessary to operate a pension plan.
Components of Pension Expense Amortization of Prior Service Costs Effect on Expense 4
Amortization of Prior Service Costs
Plan amendments often include provisions to increase benefits for employee service provided in prior years. Company allocates the cost (prior service cost) of providing these retroactive benefits to pension expense in the future, specifically to the remaining service-years of the affected employees.
Using a Pension Worksheet Illustration On January 1, 2020, Zarle Company provides the following information related to its pension plan for the year 2020. Plan assets, January 1, 2020, are $100,000. Projected benefit obligation, January 1, 2020, is $100,000. Annual service cost is $9,000. Settlement rate is 10 percent. Actual return on plan assets is $10,000. Funding contributions are $8,000. Benefits paid to retirees during the year are $7,000.