Reconcile Cedar Trail's PBO, plan assets, and funded status

Problem

Cedar Trail's draft says pension expense is $1.20 million because that is the cash contribution. It reports the $20 million PBO as the employer liability, places $16.15 million of trust assets among corporate investments, and records the $1.10 million paid to retirees as current compensation. Rebuild the close without letting four different ledgers collapse into one number.

Establish the route before calculating

The plan is a single-employer defined benefit pension plan. The employer accounts for its obligation, plan assets, periodic cost, OCI/AOCI, cash contribution, and funded status under the supplied Topic 715 facts. The benefit trust is a distinct reporting entity; its assets are restricted for benefits, not available as Cedar Trail operating cash.

VBO, ABO, and PBO answer different measurement questions. This example uses PBO because the funded-status measure is built from the actuarial present value of pension benefits attributed to service to date with projected compensation where the formula requires it. No arithmetic in this file converts one obligation measure into another.

Roll the PBO forward

Service and interest are movements in the obligation, not cash contributions. Benefits reduce the obligation because the plan has discharged those benefits. The amendment and actuarial loss enter the PBO here even though their income statement recognition follows a different rail.

Roll plan assets forward independently

The trustee's reported increase of $1.15 million is not actual return. Solve for return only after controlling cash flows:

$16,150,000 ending assets
− 15,000,000 opening assets
−  1,200,000 employer contribution
+  1,100,000 benefits paid
= $1,050,000 actual return

Expected return is $900,000. It belongs in periodic cost. The $150,000 excess of actual over expected return belongs in the gain-and-loss/OCI bridge. A market-related value used under the supplied accounting policy would not replace ending fair value in funded status.

Join only at funded status

Ending fair value of plan assets          $16,150,000
Less: ending PBO                          (20,000,000)
Ending underfunded status                 $(3,850,000)

Opening funded status was $15 million minus $18 million, or $(3.00) million. The underfunded position therefore deepened by $850,000, producing an $850,000 increase in the recognized net pension liability under the supplied facts. The $3.85 million liability is neither the gross PBO nor PBO plus AOCI.

Reconcile the seven-ledger join

Net periodic pension cost is $1.40 million, current pretax OCI is a $650,000 loss, and the cash contribution is $1.20 million. Together they explain the liability change without a plug:

Pension cost recognized                    $1,400,000
+ current OCI loss                            650,000
− employer cash contribution                1,200,000
= increase in pension liability              $850,000

Benefits do not appear in that employer entry because the same $1.10 million reduces both PBO and plan assets. Their net funded-status effect is zero.

Interpret without overclaiming

A lower discount-rate scenario produces a supplied $21.20 million obligation; a higher-rate scenario produces $19.00 million. Relative to the $20.00 million base, those are conditional changes of +$1.20 million and −$1.00 million. They are not probability bounds, forecasts, or independently calculated actuarial values. Likewise, underfunded accounting status does not by itself establish legal funding noncompliance, illiquidity, benefit insecurity, or sponsor insolvency.