Pension service cost has one role in the employer's benefit accounting. Service cost is the actuarial present value of benefits attributed to employee service in the current period. It increases PBO and enters net periodic pension cost from the same supported actuarial schedule.
Apply it
Cedar Trail's $1.2 million service cost appears as an increase in PBO and a cost component. It is one amount with two linked destinations, not two expenses.
Common mistake
Do not assume that service cost is the cash paid for employee service. Service cost is the actuarial increase in the obligation from service during the period. That error would disconnect current employee service from the actuarial increase it creates in the obligation.
Keep the boundary clear
Accounting can trace and reconcile supplied service cost but cannot calculate participant benefits, choose an attribution method, or select actuarial assumptions.
Authority
Read ASC 715-30-35-6 for the pension service-cost component.
Put the concept to work
Apply this concept
- Explain and apply pension service cost within a reconciled employer benefit-plan workpaper using supplied authoritative and actuarial facts.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Projected benefit obligation — Apply
To apply this concept: Required. This prior schedule supplies a required amount or classification.
Lessons
Worked examples and cases
Practice
Common mistaken ideas
Sources
Standard references
Broader topics
Related concepts
Use this idea next
- Pension capitalization boundary — Apply
Required level here: apply. Required. This prior schedule supplies a required amount or classification.