[ScruffMcGruff]

Hey guys, I need help understanding something from Becker that concerns pensions. On F6-13, they give a formula for calculating the funded status of a pension (it’s basically the inverse of the SIR-AGE mnemonic + Contributions received during the year), however, on their ‘Comprehensive Example’ on F6-18, they calculate the funded status of the pension without using the ‘AGE’ components. I’m confused as to why they did this. Was it due to the fact that they were amortized into OCI? If anyone could help me out that would be exxxxxxxxxxxcellent!

AUD - 85
FAR - 78 (lol@ FAR Sims)
REG - 85
BEC - August

[Anonymous]

I assume you are referring to the Pass Key on F6-13. It shows the CHANGE of beginning and ending funded status instead of the funded status itself. For funded status formula, its at the top of page F6-12: FV of Plan Assets – PBO.

If you go to F6-16 for that comprehensive example, you will see under “Dec. 31, Year 1”, Funded Status = FV of Plan Assets – PBO = 1,250,000.

Hope that helps! I know pension is a pain… I am taking FAR tomorrow and this is my weakest part of the entire exam. I am probably have to read over the section again tonight..

[Anonymous]

cpaon11 is correct. To elaborate a little bit, the SIRAGE formula gets you to the net periodic pension cost that you would report on the income statement. The formula on F6-13 is to determine the change in funded status, so you can determine the current funded status to report on the balance sheet. To find the change in funded status, you start with the beginning funded status (beg FV of plan assets – beg PBO). You add contributions, and add/subtract the SIRAGE formula, and that's your ending funded status you'll report as a pension benefit asset/liability on the balance sheet.

I seriously did not get this one bit until my final review. Somehow it just finally clicked after I looked at it for the millionth time. Hopefully the same goes for you!

[Author]

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