In short
Prior service cost is the increase in a pension obligation that results when a plan is amended to give employees credit for service already performed.
Key takeaways
- It is recognized in other comprehensive income when the plan is amended.
- It is then amortized into pension cost over the remaining service period of the employees expected to benefit.
- A plan amendment that reduces benefits creates a prior service credit instead.
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
A company amends its pension plan to give employees credit for past service. The resulting prior service cost is: