PENSION PLANS AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS in VS .NET

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PENSION PLANS AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
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of business segment that is re ected in the current year or when it results from the termination of a pension plan without a successor de ned bene t plan Even if not recognized, the effect of the event should be disclosed if it is material The preceding statements apply to quarterly nancial statements as well (i) DISCLOSURE REQUIREMENTS FOR NONRECURRING EVENTS the disclosure of nonrecurring events in the following ways: SFAS No 132 requires
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The change in PBO due to the nonrecurring event should be included in the reconciliation
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of PBO from the beginning of the year to the end of the year
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The change in assets due to the nonrecurring event should be included in the reconciliation
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of assets from the beginning of the year to the end of the year
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The amount of gain or loss recognized due to a settlement or curtailment should be included
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in the disclosure of the amount of net period bene t cost recognized
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The cost of providing any special or contractual termination bene ts recognized should be
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disclosed, as well as a description of the nature of the event Despite the nonrecurring nature of these events, such gain or loss is normally not an extraordinary item as de ned in paragraphs 20 22 of APB Opinion No 30 One exception is when the gain or loss is related to the disposal of a business segment (j) ILLUSTRATION NONRECURRING EVENTS Exhibit 385 illustrates the application of SFAS No 88 with respect to settlement, curtailment, and special termination bene ts and that of SFAS No 87 with respect to business combinations accounted for under the purchase method
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384 SPONSOR ACCOUNTING FOR NONQUALIFIED PLANS
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(a) QUALIFIED VERSUS NONQUALIFIED PLANS Quali ed pension plans present notable tax advantages to both employer and employee as a form of employee compensation The immediate advantage to the employer is the ability to deduct currently, within limitations, contributions to
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BACKGROUND INFORMATION AND ASSUMPTIONS Company X, which was used to illustrate the application of SFAS No 87, experienced the following events, all occurring on December 31, 20X3, and in the sequence shown below: The PBO for pensioners was $6,000 on December 31, 20X3 Company X purchased participating annuities at a cost of $6,200 to discharge this obligation, $600 of which would be expected to be refunded by the insurance company in the form of dividends in future years Company X closed one of its major manufacturing plants and permanently laid off all its workers These workers would have represented 20% of the future service of all of Company X s employees The PBO with respect to these laid-off workers was $1,500 before the layoff and only $800 after the layoff, ignoring the special bene ts described below For those laid-off employees who were eligible for early retirement, Company X offered unreduced early retirement pensions and an additional supplemental pension up to age 62 If not for the plant closing, these employees would have been entitled to a reduced early retirement pension only and no supplement The value of the supplements and the waiver of the early retirement reduction was $400 Also on December 31, 20X3, Company X acquired Company Y, which sponsored a de ned bene t pension plan with a PBO of $1,000 and plan assets worth $1,400 Company X has not adopted SFAS No 96 Exhibit 385 Nonrecurring events
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384 SPONSOR ACCOUNTING FOR NONQUALIFIED PLANS EFFECT ON FUNDED STATUS ON DECEMBER 31, 20X3 Special Termination Bene t3 Acquisition of Company Y4
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Initial Status Projected bene t obligation Plan assets (fair value) Funded status Unrecognized net loss (gain) Unrecognized prior service cost Unrecognized net obligation at date of initial application Prepaid (accrued) pension cost
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Effect of Settlement1
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Effect of Curtailment2
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Revised Status
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$ (16,600) 12,150 $ (4,450)
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$ 6, 200 (5, 600) $ 600
$ 700 0 $ 700
$(400) 0 $(400)
$(1, 000) 1, 400 $ 400
$(11, 100) 7, 950 $ (3, 150)
(728)
(239)
1,690
(338)
1, 352
2,200
(440)
1, 760
(128)
$(317)
$(400)
(266)
Although the price of the annuity contract was $6,200, the cost for SFAS No 87 purposes is only $5,600 since $600 of future dividends are anticipated The $600 will be carried as a plan asset In accounting for the settlement the following steps are followed: First, the $16,600 PBO needs to be reevaluated because the PBO for pensioners was discovered to be $5,600 instead of $6,200 The revised PBO, therefore, is $16,000, of which $5,600 was settled through the annuity purchase The settlement percentage is 35% Second, the unrecognized net loss is reduced from the $967 before the settlement by the $600 savings from the annuity contract, leaving a net loss of $367) The settlement loss is $128 (ie, $367 net loss times settlement percentage of 35%) This loss reduces the prepaid pension cost from $407 to $279 2 The 20% reduction in future services expected from the employee is signi cant enough to constitute a curtailment under SFAS No 88 The curtailment gain/loss consists of two components the prior service recognition and the PBO adjustment The curtailment loss is calculated as follows: The remaining unrecognized prior service cost on December 31, 20X3, is $1,690 and the remaining transition obligation is $2,200 for a total of $3,890 The prior service cost recognition is 20% (the curtailment percentage) of the $3,890, or a $778 loss The PBO is reduced by $700 on account of the plant closing However, since the plan still carries an unrecognized net loss of $239 at this point, the $700 saving must rst be applied to eliminate the $239 unrecognized loss before the remaining $461 may be recognized as a PBO adjustment gain The net curtailment loss is $317 (the $778 prior service cost less the $461 PBO gain) This $317 loss results in an accrued pension cost of $38 The amortization of the prior service cost ($130 in 20X3) will be $160 in 19X4 The respective remaining amortization periods will nevertheless remain unchanged 3 The value of the special bene ts ($400) is recognized in full immediately and further increases the accrued pension cost from $38 to $438 4 Company Y s plan has an excess of $400, the difference between the plan assets of $1,400 and the PBO of $1,000 The $400 excess (less $228 in deferred tax) is recognized in purchase accounting and added to goodwill Meanwhile the accrued pension cost is reduced by $172, from $438 to $266 Exhibit 385 Continued
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