More FAS and EGTRRA

[Guest guppy]

OK, so now you've amended your plan for EGTRRA prospectively which increases the PBO, but not the ABO. Should the increase in PBO be amortized as a Prior Service Cost?

Doing this creates a counter-intuitive result - you increase PBO and set up a PSC base so there's no impact on your accrued pension cost. The ABO is uneffected so you have not changed your minimum liability. However, the PSC base can be used as an intangible asset so you effectively reduce your OCI charge. Is this result right? Should I recommend to all my clients that they prospectively increase benefits to avoid OCI charges in the future (kidding, of course). Should you only set up a PSC base if you adopt EGTRRA retroactively?

[AndyH]

It is my understanding that a prior service cost base is set up only if prior service is affected by the change, in which case you would have an increase in the ABO. If no change in ABO, no change in PSC.

[Guest guppy]

So therefore, in the case of a routine plan amendment, you recognize the increase in ABO as PSC, and let the rest of the increase in PBO flow through the G/L?