Question

Harmony Express Company offers a defined-benefit pension plan to all its employees. At December 31, 2015, the fair value of plan assets, which equal the market-related asset value, was $600,000 and the Projected Benefit Obligation was also $600,000. On January 1, 2016, as part of the union agreement, Harmony Express Company granted $75,000 in retroactive benefits to all employees for their prior years’ service when the average remaining service life of employee base was 10 years. The actuary provided the following information related to the plan for 2016 through 2018.

Description	2016	2017	2018
Service cost for the year	$43,250	$55,200	$58,750
Settlement rate	7%	6%	5%
Expected return on plan assets	5%	5%	6%
Actual return of plan assets	42,000	37,500	40,240
Contributions for the year	35,000	94,500	43,000
Benefits payments for the year	26,100	33,400	34,750
Decrease in the ending projected benefit obligation due to changes in actuarial assumptions		75,200

Required:

Fill out the following table to compute the pension expense for each year. Show all the components of pension expense.

Components of Pension Expense	2016	2017	2018

Answer 1

Components of pension expense	2016	2017	2018
Service cost for the year	$43250	$55200	$58750
Expected return on plan assets	($32545)	($37475)	($47879)
Interest cost	$42000	$36000	$30000
Amortisation of prior service cost	$7500	$7500	$7500
Gain / Loss		$75200
Total pension expense	$60205	$136425	$48371

Calculation of expected return :-

Particulars 2016($) 2017($) 2018($)

Opening plan assets 600000 650900 749500

Actual return 42000 37500 40240

Contributions 35000 94500 43000

Benefits payments (26100) (33400) (34750)

Closing plan assets 650900 749500 797990

Expected return 32545 37475 47879

Calculation of amortisation of service cost:-

Amortisation = $75000 / 10 =$7500 per year