TAN Company has a defined benefit pension plan for its employees. The plan has been in existence for several years. During 2018, for the first time, TAN experienced a difference between its expected and actual projected benefit obligation. This resulted in a cumulative “experience” loss of $29,000 at the end of 2018, which it recorded and which did not change during 2019. TAN amortizes any excess loss by the straight-line method over the average remaining service life of its active participating employees. It has developed the following schedule concerning these 40 employees: Employee Numbers Expected Years of Future Service Employee Numbers Expected Years of Future Service 1–5 3 21–25 15 6–10 6 26–30 18 11–15 9 31–35 21 16–20 12 36–40 24 TAN makes its contribution to the pension plan at the end of each year. However, it has not always funded the entire pension expense in a given year. As a result, it had an accrued pension cost liability of $65,000 on December 31, 2018. In addition to the preceding information, the following set of facts for 2019 and 2020 has been assembled, based on information provided by TAN’s actuary and funding agency, and obtained from its accounting records: 2019 2020 Plan assets, fair value (12/31) $620,500 $860,550 Cumulative net loss (1/1) 29,000 29,000 Expected (and actual) return on plan assets 40,500 62,050 Company contribution to pension plan (12/31) 175,000 178,000 Projected benefit obligation (1/1) 470,000 686,000 Discount rate 10% 10% Service cost 169,000 175,000 Plan assets, fair value (1/1) 405,000 620,500 Required: Calculate the average remaining service life of TAN’s employees. Compute to one decimal place. Prepare a schedule to compute the net gain or loss component of pension expense for 2019 and 2020, assuming that the company uses the corridor approach. For simplicity, assume the average remaining life calculated in Requirement 1 is applicable to both years. Prepare a schedule to compute the pension expense for 2019 and 2020.
TAN Company has a defined benefit pension plan for its employees. The plan has been in existence for several years. During 2018, for the first time, TAN experienced a difference between its expected and actual projected benefit obligation. This resulted in a cumulative “experience” loss of $29,000 at the end of 2018, which it recorded and which did not change during 2019. TAN amortizes any excess loss by the straight-line method over the average remaining service life of its active participating employees. It has developed the following schedule concerning these 40 employees:
|
Employee Numbers |
Expected Years of Future Service |
Employee Numbers |
Expected Years of Future Service |
|
1–5 |
3 |
21–25 |
15 |
|
6–10 |
6 |
26–30 |
18 |
|
11–15 |
9 |
31–35 |
21 |
|
16–20 |
12 |
36–40 |
24 |
TAN makes its contribution to the pension plan at the end of each year. However, it has not always funded the entire pension expense in a given year. As a result, it had an accrued pension cost liability of $65,000 on December 31, 2018.
In addition to the preceding information, the following set of facts for 2019 and 2020 has been assembled, based on information provided by TAN’s actuary and funding agency, and obtained from its accounting records:
|
2019 |
2020 |
||
|
Plan assets, fair value (12/31) |
$620,500 |
$860,550 |
|
|
Cumulative net loss (1/1) |
29,000 |
29,000 |
|
|
Expected (and actual) return on plan assets |
40,500 |
62,050 |
|
|
Company contribution to pension plan (12/31) |
175,000 |
178,000 |
|
|
Projected benefit obligation (1/1) |
470,000 |
686,000 |
|
|
Discount rate |
10% |
10% |
|
|
Service cost |
169,000 |
175,000 |
|
|
Plan assets, fair value (1/1) |
405,000 |
620,500 |
Required:
- Calculate the average remaining service life of TAN’s employees. Compute to one decimal place.
- Prepare a schedule to compute the net gain or loss component of pension expense for 2019 and 2020, assuming that the company uses the corridor approach. For simplicity, assume the average remaining life calculated in Requirement 1 is applicable to both years.
- Prepare a schedule to compute the pension expense for 2019 and 2020.
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