I am preparing a 6/30/05 FASB reconciliation for a defined benefit plan where the fiscal year is 7/1/04 - 6/30/05. The plan was amended to freeze benefit accruals as of 6/30/05, thus I have a curtailment under FAS 88.

As of 6/30/05, prior to the curtailment, the plan had the following:
unrecognized net (gain)/loss = ($45,000)
unrecognized prior service cost = $0
unrecognized transition obligation/(asset) = ($20,000)

The curtailment reduces the PBO by $1,000,000.

Given the following, what is the effect of curtailment recognized on the (accrued)/prepaid pension expense (as follows)?:

(Accrued)/Prepaid Pension Expense at 7/1/2004 = ($100,000)
Net Periodic Pension Profit/(Cost) for 7/1/04 - 6/30/05 = ($75,000) {edited - inadvertently reversed signs in original post}
Contributions deposited 7/1/04 - 6/30/05 = $75,000 {edited - inadvertently reversed signs in original post}
Effect of Curtailment = ????
(Accrued)/Prepaid Pension Expense at 6/30/2005 = ????

Do I fully recognize the Transition (Asset)?

Do I fully recognize the Unrecognized (Gain)?

Any help would be greatly appreciated!

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Dude, read FAS 88.

In general, you will recognize a gain in excess of the exisiting loss/trans.ob...since you are in a gain position already, the whole $1 million is recognized as income. Exisiting unrecog.s remain.

My reading of FAS 88 paragraph 21b is that I should add the Transition (Asset) to the Unrecognized (Gain), thus eliminating the Transition (Asset). So at 6/30/05 I would have:

Transition (Asset) = $0
Unrecognized (Gain) = ($65,000)

Would you agree?

G: based on the facts how is the 1M included in income under the IRC if benefits are frozen? Are you discussing income for taxation or something else?

Stunner, sorry for being flip. I understand why one would read it that way, but I beleive the combining of the Transition Asset is for purposes of determining a "threshhold" to see if you are in a net gain or loss position. If in a net gain position after combining transition and gain/loss, then you would take the curtailment gain. The unrecognized amounts continue unchanged.

If you were in a net loss position, then maybe you would zero out the losses, then take the excess gain only, leaving nothing left to amortize.

That's how I think of it.

MJB,

I think the IRC and this FAS treatment are two separate things (with one exception noted below). While pension income for accounting purposes, this is not a taxable event.

Note that things like Additional Minimum Liability can be reduced for the impact of deferred taxation. The theory is that it will eventually have to be funded, and that funding will be tax-deductible (at least for a for-profit enterprise). Not sure if the new FASB proposals where they want you to book the whole unfunded will be tax adjusted, but i do not see why not...