Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Is the following scenario classified as curtailment or a plan amendment? Bobby's Paper Airplane Company's wants to eliminate the single-employer defined benefit pension plan by

Is the following scenario classified as curtailment or a plan amendment?

Bobby's Paper Airplane Company's wants to eliminate the single-employer defined benefit pension plan by eliminating the future earning of pension benefits for 85 percent of its employees (i.e., freeze its pension plan). If they decide to freeze its current pension plan for 85 percent of its workforce, it will not offer any new pension benefits to its affected employees through another plan. The current pension plan is the only retirement benefit arrangement it provides to its affected employees. The plan's pension benefits are based on years of service and average salary for the last five years of the employee's service period. Employee paid on hourly or salaried, who have attained six months of service are participants in the pension plan.

Under the plan freeze, Bobby's will eliminate the accrual of additional pension benefits for future service, while NOT taking future salary increases into account in computing the average salary for the last five years before retirement when determining the pension benefits earned for service before the plan freeze. The pension plan freeze, if adopted, will be effective on November 1, the beginning of Bobby's next fiscal year, and is expected to be approved and communicated to affected employees before October 30 year-end.

My confusion: I could classify this as a curtailment and a plan amendment, but am not sure which one this leans more towards. Cutting 85% of all employees future benefits including increases, sounds like a curtailment based on the definition from the FASB. It also sounds like a normal plan amendment change. They are simply not going to take into account future salary raises in the 5 year average. So which is it? I can seem to make the argument for both sides but dont believe it qualifies for both sides.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting

Authors: Robert Libby, Patricia Libby, Daniel G Short, George Kanaan, Maureen Sterling

6th Canadian edition

73208140, 1259105695, 978-1259105692

More Books

Students also viewed these Accounting questions

Question

2. Talk to other teachers or parents about ideas for reinforcers.

Answered: 1 week ago