Question

Herring Wholesale Company has a defined benefit pension plan. On January 1, 2018, the following pension related data were available:

	($ in 000s)
Net gain–AOCI	$350
Accumulated benefit obligation	2,770
Projected benefit obligation	2,600
Fair value of plan assets	2,300
Average remaining service period of active employees (expected to remain constant for the next several years)	15	years

The rate of return on plan assets during 2018 was 8%, although it was expected to be 10%. The actuary revised assumptions regarding the PBO at the end of the year, resulting in a $39,000 decrease in the estimate of that obligation.

Required:

1. Calculate any amortization of the net gain that should be included as a component of net pension expense for 2018.
2. Assume the net pension expense for 2018, not including the amortization of the net gain component, is $341,000. What is pension expense for the year?
3. Determine the net loss—AOCI or net gain—AOCI as of January 1, 2019

Answer 1

1. ($ in 000s)

Net gain (previous gains exceeded previous losses) $ 350

10% of $2,600 ($2,600 is greater than $2,300) ($ 260)

Excess at the beginning of the year $90

Average remaining service period years / 15

Amount amortized to 2018 pension expense $6

2.

Pension expense exclusive of net gain amortization $ 341

Amortization of net gain ($6)

Pension expense $ 335

3.

Net gain-AOCI, beginning of 2018 ($350)

2018 loss on plan assets [(10%-8%) x 2,300] $ 46

2018 amortization $ 6

2018 gain on PBO ($ 39)

Net gain-AOCI, end of 2018 (beginning of 2019)   ($ 337)