FAS 88 Curtailment

[Guest Turtle_01]

I have a calendar year plan that is freezing benefit accruals as of 1/1/2005. How do I account for this under FAS 88?

[david rigby]

Not to be flippant, but that might depend on who you are (sponsor, auditor, actuary, etc.) Perhaps you can elaborate.

A couple of prior discussions:

http://benefitslink.com/boards/index.php?showtopic=24886

http://benefitslink.com/boards/index.php?showtopic=26985

[Guest Turtle_01]

Sorry, actuary. I'm trying to prepare the Net Periodic Pension Cost for 2005.

[Guest Turtle_01]

I'm not sure what to do with my Unrecognized Loss. These are the facts:

Service Cost = $0

Interest Cost = 68,330

Expected Return on Assets = (80,505)

Amortization of Transition Obligation = 56,841 (full recognition of 12/31/04 balance)

Amortization of Prior Service Cost = (99,300) (full recognition of 12/31/04 balance)

Amortization of (Gain)/Loss = ??????

Net Periodic Cost = (0 + 68330 - 80505 + 56841 - 99300 + ????)

Unrecognized Loss at 12/31/2004 = 632,943

(Gain) on curtailment = (291,233)

Loss on recalculation of PBO at 1/1/2005 = 57,112

Accumulated Loss at 1/1/2005 = (632943 - 291233 + 57112) = 398,822

Do I recognize the entire 398,822 in the Net Pension Cost?

[david rigby]

Not sure I understand all the facts. There may also be an inconsistency. When is the curtailment? 12/31/04 or 01/01/05?

Better question might be, when is the curtailment being recognized? If at 12/31/04, then the 12/31/04 (Accrued)/Prepaid Pension Cost should already have the curtailment gain/loss, and all 2005 values are determined after the curtailment/freeze.

[Guest Turtle_01]

The curtailment is being recognized 1/1/2005.

[Guest DBtech]

If the plan is freezing benefit accruals 1/1/05, the unamortized amounts of prior service costs and transistion obligation are recognized in full, i.e., the portion of future service being eliminated is 100%. If the curtailment results in a gain (reduction in PBO more than special termination benefits, etc.), that gain must first be offset against any remaining unrecognized loss subsequent to tranisition--on a dollar for dollar basis--before it can be recognized in earnings. Vice versa for a curtailment loss.

[ishi]

Turtle, given the facts as stated ...

First start with the funded status as of 12/31/2004 [PBO, MVA, accum TO, accum PSC, accum (g)/l and (accd)/ppd]. The recalculation of the PBO at 1/1/2005 increases the PBO by 57,112 and increases the accumulated loss by the same amount. All other items remain the same.

As a result of the plan freeze, the PBO is reduced by 291,233. Since this gain is less than the accumulated loss, all of the gain is applied against the loss. Thus, the accumulated loss at 1/1/2005 (post curtailment) is $398,822.

Also as a result of the freeze, the accum TO and accum PSC become fully recognized. To accomplish this, the (accrued)/prepaid is increased by 42,459 (99,300 - 56,841). Thus, after the freeze, the accum TO = 0, accum PSC = 0, accum loss = 398,822, and the (accd)/ppd is 42,459 higher. The net periodic cost for 2005 is then determined in the normal manner (including the amortization of the (g)/l) using the funded status items as of 1/1/2005.

Finally, the 42,459 adjustment to the (accd)/ppd is a curtailment gain that needs needs to be subtracted from the net periodic cost to determine the "total pension cost" for 2005. Thus, the total pension cost is the net periodic cost developed in the previous paragraph, reduced by the curtailment gain (the $42,459).

This is how I would account for your curtailment.