Question

Southeast Technology provides postretirement health care benefits to employees. On January 1, 2021, the following plan-related...

Southeast Technology provides postretirement health care benefits to employees. On January 1, 2021, the following plan-related data were available:

($ in thousands)
Prior service cost—originated in 2016 $ 50
Accumulated postretirement benefit obligation 530
Fair value of plan assets none
Average remaining service period to retirement 20 years (same in previous 10 years)
Average remaining service period to full eligibility 15 years (same in previous 10 years)


On January 1, 2021, Southeast amends the plan in response to spiraling health care costs. The amendment establishes an annual maximum of $3,000 for medical benefits that the plan will provide. The actuary determines that the effect of this amendment is to decrease the APBO by $80,000. Management amortizes prior service cost on a straight-line basis. The interest rate is 8%. The service cost for 2021 is $114,000.

Required:
1. Complete the below table to calculate the prior service cost amortization for 2021.
2. Complete the below table to calculate the postretirement benefit expense for 2021.

Homework Answers

Answer #1
1)
prior - Service cost Amortization for 2021
Particulars Amount (in $ thousands)
Prior service cost $50
Reduction for amendment ($80)
Revised Prior service cost $30
Service period (Years) 15 years
Amortization ($30 / 15) $2
prior - Service cost Amortization for 2021 = $2
2)
Post-retirement benefit expense for 2021
Particulars Amount (in $ thousands)
Service cost $114
Interest cost
(8%($530 (-) $80))
$36
Return on plan assets $0
Amortization of prior service Cost ($2)
Postretirement benefit expense $148
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