What is Corridor approach (pensions)?
In short
Under the corridor approach, a pension plan's net actuarial gain or loss in accumulated other comprehensive income is amortized into pension cost only to the extent it exceeds 10% of the greater of the projected benefit obligation or the market-related value of plan assets.
Key takeaways
- The excess is amortized over the average remaining service period of active employees.
- Balances are measured at the beginning of the year.
- Faster recognition methods are allowed if applied consistently.
Example
A $150,000 net loss with a $1,200,000 obligation: corridor $120,000; $30,000 excess ÷ 10 years = $3,000 a year.
Where it's tested
BAR: Employee Benefit Plan Accounting — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
At the start of the year, a pension plan had a net actuarial loss in accumulated other comprehensive income of $150,000, a projected benefit obligation of $1,200,000 and plan assets (market-related value) of $1,000,000. Average remaining service is 10 years. What is the minimum amortization of the loss this year?