Question

When you're trying to find what amount to amortize transition liability, do you divide the unamortized transition liability by the weighted average maturity of the plan assets or by the expected number of years to retirement? Also, once you calculate that number, do you add it to expenses since it's a transition liability instead of a transition asset?

Answer 1

For amortizing transition liability the following formula is used:

Amortization of transition liability = (market value of plan assets – projected benefit obligations)/average remaining service life of employees.

Hence when you're trying to find what amount to amortize transition liability you will divide the unamortized transition liability by the expected number of years to retirement.

Once the amount is calculated it is added to the expenses. The formula is:

Pension expense = service cost+interest cost-expected return on pension investment+amortization of unrecognized prior cost+amortization of unrecognized gains - amortization of unrecognized loss+amortization of transition asset - amortization of transition liability.