to calculate pension expense under the defined benefit plan we use the A-SPIDER mnemonic. lets look at all parts.
1. + SERVICE COST- amount told to set aside to meet the needs by actuary. Increase in PBO for 1yr.
2. + INTEREST COST- this is the interest earnings the PBO would earn for 1yr calculation. (beg pbo x discount rate/settlement rate)
3. +/- PRIOR SERVICE COSTS- Costs associated with years before plan was implemented. calculation is (beg psc/avg service life or expected future yrs of service)
- 4. - ACTUAL RETURN ON THE PLAN ASSETS- earnings on plan during the period. Money earned so don't have to put in as much. Calculation in 2 methods:
- 1. end pa-beg pa-contributions made+benefits paid or
- 2. beg fv pa x actual return
5. +/- DEFERRED GAIN(LOSS)- Actual vs expected return and a gain/loss can occur needs to be deferred. calculation is (return on pa - <beg pa x expected rate of return>)
- 6. -/+ EXCESS AMORTIZATION OF DEFERRED GAIN/LOSS- you amortize over years and deferred gain continuously increases,etc. to benchmark whether the deferred gain/loss is too much is the 10% of larger of
- A) Beg pbo = 500
- B) Beg fv of pa = 600
- so larger is 600 x 10% = 60k deferred allowed.. any extra gets amortized out in the pension expense. The Amortization expense = excess/avg service life
7. + AMORTIZATION OF AN EXISTING NET OBLIGATION- due to FASB 87 transition adjustment for diff between PBO & FV of PA. amortize amount of difference between the two.
*ALL THESE CALCULATE PENSION EXP HERE IS ENTRY