Funded status of pension plan

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Funded status of pension plan is determined by the comparison between Plan Assets Funded (PAF) and Pension Benefit Obligation (PBO). First, the end of year PAF and PBO have to be calculated. If end of year PAF exceeds PBO, the funded status is overfunded. If end of year PAF is below PBO, the funded status is underfunded.

Mnemonic[edit]

A prisoner Catches A Bear SIP A Beer

Beerandbear.jpg
Prisoner Pension
Plan Assets Funded (PAF) Pension Benefit Obligation (PBO) Funded Status
CAB SIPAB PAF fair value at the beginning of the year PBO at the beginning of the year
(+) Ccontributions (+) Service cost
(+) Actual return (+) Interest cost
(-) Benefits paid (+) Past service cost
(-/+) Acturial gains/losses during the year*
(-) Benefits paid
= PAF fair value at end of the year = PBO at the end of the year
If PAF fair value at end of the year > PBO at the end of the year Overfunded
If PAF fair value at end of the year < PBO at the end of the year Underfunded
* Please note to deduct the actuarial gains while add the actuarial losses.

Imagine a prisoner escape from prison. He is starving so he Catch A Bear to eat and SIP A Beer after a long time without drinking alcohol in prison.


External links[edit]

http://www.investopedia.com/terms/f/fundedstatus.asp
http://www.acapinstitute.com/CFAL2.html

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