What is Pension settlement and curtailment?
In short
A settlement irrevocably relieves an employer of a pension obligation, for example by lump-sum payments or buying annuities. A curtailment significantly reduces employees' expected years of future service or eliminates benefits for future service.
Key takeaways
- A settlement triggers recognition of part of the unrecognized gains or losses in accumulated other comprehensive income.
- A curtailment, such as closing a plant, triggers recognition of related prior service cost and may cause a gain or loss.
- Small settlements below the year's service and interest cost may be ignored by policy.
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 defined benefit plan has plan assets with a fair value of $8,000,000 and a projected benefit obligation of $9,500,000. How is this reported on the balance sheet?