Components of Postretirement Benefit Expense

1. Ch 21Accounting for Other Post Retirement BenefitsAccrue the Expense during the employees’ years of service

2. Components of Postretirement Benefit Expense + (1) Service costthe portion of the EPBO attributed to employee service during the period + (2) Interest costaccrued on the liability (APBO) - (3) Expected Returnon plan assets • Actual return - Unexpected return = Expected return Amortized portion of: + Prior service cost (amortized over the remaining periods to the date employees are fully eligible for benefits) + or - Deferred Net Loss or (Net Gain)from revisions in the liabilityor from investing plan assets … Corridor Approach over remaining employee service period + Transition Obligation(from adoption of FAS 106) = Postretirement Benefit Expense …………………………………………………………..…..

3. Transition Obligation… at the beginning of the year of FAS 106 Adoption |APBO| … the liability … the actuarial present value of future benefits attributed to employees’ services rendered to a particular date. The APBO is the EPBO for retirees and active employees fully eligible for benefits. Before they are eligible, ABPO<EPBO - Fair Value of Plan Assets -/+ Prepaid (Accrued) Obligation = TransitionObligation(expense immediately or amortize (SL) over average remaining service period of employees or 20 years (whichever is larger))

4. Nature of Components of Postretirement Benefit Expense Effect on APBO, Plan Assets & the Postretirement Benefit Expense Component Service Cost Interest Cost Return on Plan Assets Prior Service Cost Losses or Gains Transition amount ... on APBO Increase Increase None Increase Losses increase; Gains decrease ... on Plan Assets None None Increase (unless negative) None Gains increase; Losses decrease …Pension Expense Increase Increase Decrease (unless negative) Increase (delayed) Losses increase; gains decrease Liability increases; Asset decreases