The initial projected benefit obligation
is equal to 9% of the value of the firm, which is the average pension liability of defined benefit plan sponsors as documented by Shivdasani and Stefanescu (2009).
For example, "the expected long-term rate of return on plan assets shall reflect the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation
31, 2004, are found in ExxonMobil's 2005 form 10-K (in millions): SFAS 87 Memorandum accounts: Plan assets $7,299 debit Projected benefit obligation
10,770 credit Deferred actuarial losses 2,638 debit Prior service costs 172 debit SFAS 87 Actual accounts: Prepaid pension cost $71 debit Accrued pension liability 1,951 credit Intangible asset 244 debit Reduction in equity related to minimum liability 975 This journal entry would be made to accomplish the conversion to compliance with the requirements of SFAS 158 (AOCI = Accumulated Other Comprehensive Income).
As of June 30, 2012, DH's projected benefit obligation
was $927 million and with the proceeds from the pension financing, the pension plan is now approximately 82% funded on a GAAP basis (based on 4.
For pension plans, the benefit obligation is the projected benefit obligation
, which is the present value of all future benefits earned by employees prior to the current date.
Year-to-date, assets have improved by $60 billion and the projected benefit obligation
has been reduced by $172 billion, resulting in a $233 billion improvement in funded status and increasing the funded ratio to 89.
Before Settlement Impact of Settlement Projected Benefit Obligation
$ (100,000,000) $ 40,000,000 Assets 120,000,000 (42,000,000) Funded Difference 20,000,000 (2,000,000) Transition Obligation 5,000,000 0 Prior Service Cost 0 0 Unrecognized Gain (35,000,000) 15,588,000 (Accrued)/ Prepaid Pension Expense $ (10,000,000) $13,588,000 After Settlement Projected Benefit Obligation
$ (60,000,000) Assets 78,000,000 Funded Difference 18,000,000 Transition Obligation 5,000,000 Prior Service Cost 0 Unrecognized Gain (19,412,000) (Accrued)/ Prepaid Pension Expense $ 3,588,000
A reconciliation of the projected benefit obligation
for pensions and the accumulated post-retirement benefit obligation from beginning to end of the year, showing separately the service cost, interest, contributions by participants, actuarial gains and losses, foreign currency exchange rate changes, benefits paid, amendments, business combinations, divestitures, curtailments, settlements, and special termination benefits.
GM hopes to benefit from the transaction in several ways, including reducing risk from volatility in the projected benefit obligation
, reducing risk of volatility in plan asset values, and reducing longevity risk.
In February, the projected benefit obligation
(PBO) for these pensions reached $1.
Under pension accounting, service cost is the increase in projected benefit obligation
earned during a period.
The new requirement will affect stockholders' equity in many instances, but most probably in companies that sponsor dollar-per-month plans, where the projected benefit obligation
is equal to the ABO, and other plans whose unfunded ABO rose as a result of actuarial losses, such as declines in asset values stemming from the stock market crash.