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Pension Resource

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General Overview

To communicate a defined benefit (DB) plan’s obligations to pay benefits and the assets available to meet those obligations financial statements are typically prepared. A DB plan is a retirement plan that promises participants a specific benefit at retirement, usually in the form of a monthly payment for the remainder of their lives. (Other forms of payment may also be provided, such as spousal benefits or a single lump-sum payout.) Actuaries calculate the present value of these benefits for part of this disclosure. This is the liability side of the statements.

The other side of the statements are the assets for paying benfits. DB plans typically maintain a general account (a pool of assets) to fund these benefits. Each asset is invested to help pay these benefits when the participant is ready. From year to year, a plan’s financial status—its ability to pay benefits—can change. Financial reports are often prepared to help communicate the financial status of the plan, assets compared to liabilities. U.S. GAAP in ASC-960 provides DB plans with the general standards to prepare these statements. This article is to educate on the general requirements of ASC-960 reports.

Before proceeding, it is important to acknowledge that ASC-960 reports are distinct from other pension valuation reports. For example, ASC-715 under U.S. GAAP focuses on the employer’s recognition of pension expense for the plan they maintain. (This ASC-715 expense is distinct from the amounts contributed to their plan.) Additionally, an IRC 430 valuation establishes the minimum funding requirements mandated by the federal government and ERISA for most pension plans, though actual funding policies may differ. While, in theory, plan assets and actuarial liabilities reported across these different valuation reports types may matach depending on the plan design and methods used, they generally do not match. Each valuation serves a distinct purpose and follows its own set of standards. Lastly, this article doesn't reflect actuarial standards of practice as propagated by American Academy of Actuaries.

Returning to the ASC-960 statements, as described in ASC 960-205-45-1 these are annual statements that provide balances and liabilities as of a Benefit Information Date, typically the last day of the plan year. This is not necessarily the valuation date of the plan but often is. If a begin of year valuation date is used, typically that is used for the benefit information date for the last day of the prior plan year for the preceeding year (the day before the valuation date). These statements have a Reporting Date, the date officially presented. Receivables and other significant events between the Benefit Information Date and Reporting Date get reflected in the statements. ASC 960-205-45-1 provides there is a minimum there four statements included:

  • Statement of Actuarial Present Value of Accumulated Plan Benefits & Net Assets Available for Benefits
    • These two statements are often listed together but can be reported separately.
  • Changes in Actuarial Present Value of Accumulated Plan Benefits
  • Changes in Net Assets Available for Benefits
Typically additional statements are provided, or at least prepared and held as supplmements to support the results presented. These additional statements typcailly support the reports above. These include:
  • Summary of Plan Benefit Provisions
  • Accumulated Plan Benefits
  • Actuarial Assumptions and Methods
  • Statement of Cash Flows
  • Additional Financial Statement Disclosures
Each statement is to include footnotes disclosing significant or material events relevant to the statement. Footnotes are a vital component to financial statements. For example, assets illustrated in these statements may not match the assets reported of the 5500 form or an actuarial valuation report. As such a reconciliation table identifying the differences between them may be included.

Disclaimer: This article is intended for general educational purposes only. The official guidance on formulas and reporting requirements is prescribed by U.S. GAAP in ASC-960, and primary reference should always be given to that codification. Generally accepted accounting principles (GAAP) are broadly recognized standards, but specific circumstances may require additional considerations. If you identify any errors in this article or believe modifications are needed to better reflect GAAP, please use the Contact Us page to submit your feedback for review.

    Immaterial Deviation from Codification:
  • To help limit confustion, this article referrs to "Actuarial Present Value of Accumulated Plan Benefits". Whereas in the codification this statement is referred as "Accumulated Plan Benefits".
  • Further, this article referrs to "Accumulated Plan Benefits". Whereas in the codification this statement is referred as "Measurement of Accumulated Plan Benefits".
  • Because in the codification, and its example illustrations, it uses/requires "Actuarial Present Value of Accumulated Plan Benefits" for the “Accumulated Plan Benefits” statement's content, it is more practical to title this report for the value this statement is to disclose, as the "Actuarial Present Value of Accumulated Plan Benefits" statement.
  • Similarly the ambiguity of "Measurement" in “Measurement of Accumulated Plan Benefits” may cause confusion. (Is it the present value measurement or the calculation of accumulated benefits? As shown in their example illustration, it is the calculation of accumulated benefits not the present value of benefits.) As such, this article uses "Accumulated Plan Benefits" instead of “Measurement of Accumulated Plan Benefits” for this statement because it clearly defines its content.

Review of ASC 960 Financial Statement Standards for Defined Benefit Plans

Standards are generally grouped by their various statements' requirements.

1. Statement of Actuarial Present Value of Accumulated Plan Benefits & Net Assets Available for Benefits

This statement is the primary financial report that presents the plan’s financial status as of a specific point in time, the Benefit Information Date. This report consists of two parts: Actuarial Present Value of Accumulated Plan Benefits and Net Assets Available for Benefits. The difference between these two values generally illustrates the plan’s funded status, often labeled as Excess of Actuarial Present Value of Accumulated Plan Benefits Over Net Assets Available for Benefits presented as the last line item. Below are details on both components of this statement:

  • Actuarial Present Value of Accumulated Plan Benefits:
    • As provided by ASC 960-20-45 , the present value of future benefits payable by the plan should be disclosed as follows:
      • the value of benefits of participants currently receiving benefits.
      • the value of vested benefits for employees currenly providing service to the employer(s) maintaining the plan.
      • the value of non-vested benefits expected to become vested. In this context, "vested" refers to the right to receive the benefit, not necessarily the plan's vesting schedule.
      • Post-retiree medical plans (401(h)) are not included in the Actuarial Present Value of Accumulated Plan Benefits. These benefits and their associated assets should be reported separately.
      • If the plan includes employee accumulated contributions, their current balances and any applicable interest crediting rates should be disclosed.
      • As provided by ASC 960-40-35, if a plan is terminating generally all benefits should be reported as vested and reported as liquidation values.
  • Net Assets Available for Benefits:
    • As provided by ASC 960-30 a statement detailing total assets available to meet plan obligations. Plans may hold other assets like rollovers or 401(h) seperated assets that are not available to pay plan benefits. These are not included but are list seprartely. Assets available for plan benefits, per ASC 960-325-45-1 should be listed in at least these categories:
      • Registered investment companies (for example, mutual funds)
      • Government securities
      • Common-collective trusts
      • Pooled separate accounts
      • Short-term securities
      • Corporate bonds
      • Common stocks
      • Mortgages
      • Real estate
  • Additional considerations when preparing the Net Assets Available for Benefits statement:
    • Accrual Basis Accounting: Financial statements are to be prepared on an accrual basis, recognizing contributions receivable when formal commitments exist. Accrual accounting includes accrued interest or expenses payable as of the benefit information date.
    • Measurement of Investments: Investments must generally be reported at fair value. However, insurance contracts may be measured at contract value if they meet specific criteria. For Terminating Plans, as provided by ASC 960-40-35, asset values are reported using liquidation basis.
    • Exclusion of 401(h) Assets: Assets set aside for post-retirement medical benefits (401(h)) should not be included. If held by the plan, these assets must first be deducted and appropriately disclosed in footnotes.
    • Assets Held for Plan Operation: Any asset used by the plan for plan operations shall be listed at cost less accumulated deprecation.

  • Excess of Actuarial Present Value of Accumulated Plan Benefits Over Net Assets Available for Benefits: The difference between these two values generally indicates whether the plan is overfunded or underfunded. This is typically provided as the bottom page line item on these combined statements.

2. Statement of Changes in Actuarial Present Value of Accumulated Plan Benefits

  • Change in Actuarial Present Value of Accumulated Plan Benefits: As provided by ASC 960-20-50, this statement is to list the sources of the increases and decreases in the actuarial present value of accumulated plan benefits from the prior year to the current year. At a minimum the following sources:
    • Plan amendments
    • Changes in the nature of the plan (spinoff or plan mergers)
    • Changes in actuarial assumptions or adjustments to insurance rates when using an alternative valuation approach based on the cost of purchasing insurance to cover plan liabilities.
    Additionally, the statement should disclose other significant factors for changes the changes in present value due to:
    • Benefits Accumulated for the year
    • Benefits Paid during the year
    • Increase in actuarial liability as interest due to a decrease in the discount period. There are multiple acceptable methods for calculating this amount.

3. Statement of Changes in Net Assets Available for Benefits

  • Statement of Changes in Net Assets Available for Benefits: Tracks financial activity, including contributions, investment gains/losses, expenses, and benefit distributions.
    • As provided by ASC 960-30-45, the net assets available for benefits should be reported with the following components:
      • Net appreciation in fair value of investments or depreciation of assets
      • Investment income
      • Employer contributions, categorized separately as cash and non-cash contributions
      • Participant contributions
      • Other contributions
      • Benefits paid or refunds made back to the plan
      • Payments to insurance contracts that are excluded from assets
      • Administrative expenses
      • Other charges, such as asset transfers

4. Summary of Plan Benefit Provisions

    As described in ASC 960-205-50-1, this statement outlines the key benefit provisions of the plan considered for determining Accumulated Plan Benefits, including:

    • Benefit formula and accrual methodology.
    • Vesting provisions and eligibility criteria.
    • Plan amendments adopted during the year or footnote amendments adopted after the year but before the reporting date if signficant.
    • Optional forms of benefit payments.

5. Accumulated Plan Benefits

  • As described in ASC 960-20-25, the Accumulated Plan Benefits statement is to support the benefits considered in Actuarial Present Value of Accumulated Plan Benefits. This includes benefits reasonably expected to be paid by the plan. In general benefits earned attributable to service already rendered as of the benefit information date are valued as vested and non-vested benefits. In this context, "vested" is the right to receive the benefit, not necessarily the vesting schedule of the plan. When preparing Accumulated Plan Benefits statement the following general standards apply:
    • Plan amendments adopted after the benefit information date should be ignored but may be disclosed in footnotes if adopted before the financial statements are issued.
    • Expected automatic benefit increases provided by the plan already vested by the participant to be applied after the benefit information date should be included.
    • Benefits provided by insurance contracts excluded from plan assets should also be excluded here but may be disclosed in footnotes.
  • Vested and Non-Vested Benefits:
    • Both vested benefits and non-vested benefits expected to become vested should be included.
    • Non-vested benefits that are not expected to become vested may be disclosed separately but are not valued. For example, deemed cash outs for nonvested terminated participants to disclose the benefits not expected to be vested and therefore not valued in Actuarial Present Value of Accumulated Plan Benefits.
    • In this context, "vested" is the right to receive the benefit, not necessarily the vesting schedule of the plan. For example, if additional service is needed to for an early retirement subsidy but it is expected they will provide the needed service these benefits are considered non-vested.
  • Recognition of Vested Benefits (Accumulated Benefits):
    • Benefits should be recognized (Accumulated) proportionally based on their completed service years as of the benefit informtion date over the total years these benefits could be first fully vested. In this context, "vested" is the right to receive the benefit, not necessarily the vesting schedule of the plan.
      • 960-20-55-3 provides this example:

        To illustrate, assume a plan provides a supplemental early retirement benefit of $200 per month upon early retirement at age 55 with at least 25 years of service, payable from the date of early retirement until age 62 (the eligibility age for collecting Social Security benefits). If that benefit becomes a vested benefit after 25 years of service, it should be considered to accumulate in proportion to the ratio of the number of years of service completed to the benefit information date to the projected number of years of service that will have been completed when the benefit first becomes fully vested. Therefore, 1/25 of the $200 benefit (that is, $8) is attributed to each year of service (assuming the employee is expected to render at least 25 years of service).

      • As of the benefit information date, if no additional service is required of the participant for the right of the benefit to be paid at some future date it is valued as vested benefits.

  • Social Security Supplement Considerations:
    • If a Social Security supplement depends on future compensation, projections should be based on current compensation, without assuming future pay increases or changes to Social Security benefits.
  • Supporting Data for Accumulated Plan Benefits generally are included:
    • A listing of active employees, retirees, and other participants with their respective benefits.
    • Charts or tables illustrating eligibility for specific benefits, such as early retirement supplements, in-service withdrawals, death benefits, cash out only benefits and other benefit eligibilities.
    • Employee data, including pay history, years of service, cash balance accounts, or other factors used to determine benefits.

6. Actuarial Assumptions and Methods

  • While not specifically stated as required, a statement disclosing the actuarial assumptions and methods used to determine Actuarial Present Value of Accumulated Plan Benefits liabilities generally are disclosed. The assumptions used consider:
    • As described in ASC 960-20-35, each actuarial assumption should reflect the best estimate of the plan's anticipated experience, including and not limited to the anticipated benefit payments and the return of assets.
    • Assumed rates of return should reflect the expected rates of return that are realistically achievable based on current investments of the plan, available market options, and the plan’s investment policy.
    • Survivorship should be considered for when and how benefits will be payable. For example, if retirement benefits are forfeited upon death before retirement, a death benefit may be payable instead.
    • Assumed retirement ages or benefit decrements
    • While it is not possible to know when a person may die, become disabled, or terminate employeement, appropaite probabilities may be used on an idvidual basis.
    • For cost-of-living adjustments, expected rates of inflation should be consistent with assumed rates of return.
    • Consider participants' unvested benefits may be forfeited and not paid by the plan. In this context, "vested" is the right to receive the benefit, not necessarily the vesting schedule of the plan.
    • Plan expenses expected to be paid by the plan should be included. A footnote may disclose potential plan expenses currently being paid by the sponsor.
    • Administrative expenses incurred in making benefit payments should be considered unless expected to be paid by the plan sponsor.
  • Alternative Assumption & Method:
    • As an alternative, ASC 960-20-35-1A permits using estimated costs to obtain a contract with an insurance entity to provide participants with their accumulated plan benefits.
  • Changes in Actuarial Assumptions:
    • When actuarial assumptions change, they should be reflected in the statements for the year of change
    • Prior year statements should not be retroactively adjusted for newly adopted assumptions.
  • Additional Considerations:
    • Depending on the plan size, the law of large numbers may be considered when selecting actuarial assumptions.
    • To simplify accounting, the use of averages or approximations may be appropriate. For example, estimating missing participant data such as gender or birthdate.
    • As provided by ASC 960-20-35-17, it may be appropriate to roll an end-of-year valuation date to the beginning of the year or project a beginning-of-year valuation date to the end of the year for financial statement purposes to the benefit information date, provided the data remains substantially unchanged.

7. Statement of Cash Flows

    As provided by ASC 960-205-45-5 this statment is optional. If presented, this statement categorizes cash flows in and out of the plan, including:

    • Contributions received.
    • Benefit payments and expenses listed by type.
    • Investment purchases and sales.
    • Significant non-cash transactions, typically footnoted. Significant non-cash transactions between the sponsor/employer, key employees, or employee organization are a required item to disclose, not necessarily in the cash flow statement.

8. Additional Financial Statement Disclosures

    As provided by ASC 960-205-50-1 a statement that provides essential context for interpreting financial statements, typically covering:

    • Accounting Method: As provided by ASC 960-325-50-1 a description of the valuation techniques to measure the fair value of investments and the method used to report contract values.
    • Funding and Investment Policy: Describes how the plan is funded by the sponsor and the investment strategy.
    • Plan Sponsor-Plan Expenses: Indicates whether the plan sponsor pays plan administrative expenses.
    • Tax-Qualified Status: If the plan is a qualified plan and indicate whether the plan holds a favorable IRS determination letter.
    • IRS Minimum Funding Requirement: Discloses whether the plan meets regulatory funding obligations or if a waiver has been granted.
    • ERISA Coverage: Notes whether the plan is covered under ERISA regulations.
    • PBGC Coverage: Disclosing if the plan is covered by the PBGC and breifly dislocing the benefit protections it provides.
    • Insurance Contract Exclusions: Identifies benefits or assets excluded due to insurance arrangements. Also include a description of the policy of when insurance is to be purchased.
    • Separate Assets Held by the Plan: List any participant rollovers, 401(h) post-retiree medical benefits, or other segregated assets.
    • Specific Party of Interest Transactions: List significant in-kind transactions between the plan and the sponsor/participating employers, key participants, or employee organizations.
    • Other Material Disclosures: Any significant events affecting the plan, such as the death of a key participant or other material changes, should be disclosed to provide a complete and accurate representation of the plan’s status.
      • While not listed in ASC 960, Changes in Participant Counts are generally included.

Example Defined Benefit ASC960 Financial Statements

ASC 960-205-55-1 also provides example statements to consider. Below are additional example statements that include additional statements as presented above.

Statement of Actuarial Present Value of Accumulated Plan Benefits and
Net Assets Available for Benefits
As of 12/31/2024

1. Actuarial Present Value of Accumulated Plan Benefits

Line Description Amount ($)
1.1 Active Employee Benefits
1.1.1 Vested Benefits 5,000,000
1.1.2 Non-Vested Benefits 1,500,000
1.2 Retired Participants Receiving Benefits 8,000,000
1.3 Other Participants (generally terminated employees with benefits due.) 2,500,000
1.4 Total Actuarial Present Value of Accumulated Plan Benefits (Sum of 1.# line items above) 17,000,000

2. Net Assets Available for Benefits

Line Description Amount ($)
2.1 Stocks 16,000,000
2.2 Bonds 4,000,000
2.3 Cash 500,000
2.4 Receivables 1,000,000
2.5 Debts (2,000,000)
2.6 Total Net Assets Available for Benefits (Sum of 2.# line items above) 19,500,000

3. General Funded Status

3.1 Excess of Actuarial Present Value of Accumulated Plan Benefits Over Net Assets Available for Benefits
(Differnce of Line items 2.6 over 1.4)		 2,500,000

Footnote: As of 4/1/2025, the time these statements were prepared, $100,000 of the $300,000 Receivables remain uncontributed to the plan by the plan sponsor but a committment was provided.

Footnote: Liabilities under Various Valuation Standards

The Actuarial Present Value of Accumulated Plan Benefits represents one measurement of liabilities. Other liability valuations under different regulatory and financial reporting standards are as follows:

Line Liability Type Amount
1.1 IRC 430 Minimum Funding Target
(ERISA minimum funding requirement for the plan)		 14,500,000
1.2 IRC 404 Maximum Deductible Contribution
(Maximum deductible contribution under tax regulations)		 18,200,000
1.3 ASC 715 Projected Benefit Obligation (PBO)
(Liability used for employer accounting under GAAP)		 16,700,000
1.4 PBGC Premium Funding Target
(Liability basis used for determining PBGC variable rate premiums)		 15,300,000
1.5 Total Potential Single Lump Sum Liability
(Estimated full lump sum payout of all benefits)		 19,500,000

Note: These liability measures are based on different assumptions and methodologies specific to their respective regulatory or financial reporting purposes. The **IRC 430** and **PBGC Funding Target** liabilities are based on prescribed discount rates, while the **ASC 715** liability uses an assumed corporate bond yield curve. The **Total Potential Single Lump Sum Liability** reflects estimated lump sum payouts if all participants elected an immediate lump sum.

Statement of Changes in Actuarial Present Value of Accumulated Plan Benefits
For Period: 1/1/2024 to 12/31/2024

1. Actuarial Present Value of Accumulated Plan Benefits - Beginning of Year

Line Description Amount ($)
1.1 Beginning of Year Actuarial Present Value of Accumulated Plan Benefits (As of 1/1/2024) 16,500,000

2. Changes to Accumulated Plan Benefits

Line Description Amount ($)
2.1 Plan Amendments 200,000
2.2 Change in Actuarial Assumptions 150,000
2.3 Benefit Accruals 1,000,000
2.4 Interest Due to Decrease in Discount Period 800,000
2.5 Benefits Paid During Year (1,650,000)
2.7 Net Change to Accumulated Plan Benefits (Sum of Line items 2.# above.) 500,000

3. Actuarial Present Value of Accumulated Plan Benefits - End of Year

3.1 End of Year Actuarial Present Value of Accumulated Plan Benefits (As of 12/31/2024)
(Line 1.1 + Line 2.7)		 17,000,000

Footnote: Plan Amendment only reflects the benefit increases for service performed for prior years. Benefit Accruals reflect the amendment for service for the current year.

Statement of Changes in Net Assets Available for Benefits
For Period: 1/1/2024 to 12/31/2024

1. Net Assets Available for Benefits - Beginning of Year

Line Description Amount ($)
1.1 Beginning of Year Net Assets Available for Benefits (As of 1/1/2024) 19,000,000

2. Additions to Net Assets

Line Description Amount ($)
2.1 Net Appreciation in Fair Value of Investments 1,800,000
2.2 Investment Income
2.2.1 Interest 300,000
2.2.2 Dividends 200,000
2.3 Employer Contributions
2.3.1 Received 1,900,000
2.3.2 Receivable 300,000
2.4 Total Additions (Sum of Line items 2.# above) 4,500,000

3. Deductions from Net Assets

Line Description Amount ($)
3.1 Investment Expenses
3.1.1 Direct (100,000)
3.1.2 Indirect (50,000)
3.2 Benefits Paid
3.2.1 Annuity Payments (2,000,000)
3.2.2 Lump Sum Payments (1,000,000)
3.3 Purchase of Annuity Contracts (500,000)
3.4 Administrative Expenses
3.4.1 Plan Administration (250,000)
3.4.2 Actuarial Fees (100,000)
3.5 Total Deductions (Sum of Line items 3.# above) (4,000,000)

4. Net Assets Available for Benefits - End of Year

4.1 End of Year Net Assets Available for Benefits (As of 12/31/2024)
(Line 1.1 + Line 2.4 - Line 3.5)		 19,500,000

Footnote: Investment income includes realized and unrealized gains. Employer contributions include both received and receivable amounts as of year-end.

Example Summary of Plan Benefit Provisions

1. Plan Benefit Formula

The plan provides a retirement benefit based on years of credited service and a fixed benefit rate:

  • Benefit Rate: $100 per month per year of service.
  • Normal Retirement Benefit: Monthly benefit = Years of Service × $100.

2. Eligibility for Retirement

The plan allows different retirement options based on age and service:

  • Normal Retirement: Age 65, regardless of service.
  • Early Retirement:
    • Unreduced Benefit: Age 62 with 20 years of service.
    • Unreduced Benefit: Any age with 30 years of service. Includes a Social Security makeup benefit of $200/month until age 62.
    • Reduced Benefit: Age 55 with 20 years of service; benefit reduced by 4% per year before age 62.

3. Disability Retirement Benefits

No disability benefits are provided by the plan.

4. Death Benefits Benefits

  • Pre-Retirement: Optional joint and survivor for spouse or single lump sum
  • Post-Retirement: $15,000 single payment in addition to retirement benefit payment

5. Vesting Schedule

The plan provides a graded vesting schedule. Participants earn a vested percentage of accrued benefits as follows:

Years of Service Vested Percentage
10%
220%
340%
460%
580%
6+100%

6. Plan Amendments

No amendments were effective for the current year.

Example Accumulated Plan Benefit Statement

1. Active Employees

Active Employee Current Age Years of Service Retirement Age Accumulated Benefit Vested Benefit Non-Vested Benefit Vested Actuarial Present Value Non-Vested Actuarial Present Value Total Actuarial Present Value
Employee_1 45 10 65 1,200 800 400 85,000 15,000 100,000
Employee_2 50 15 65 1,600 1,400 200 95,000 5,000 100,000
...
Employee_41 39 7 65 900 500 400 70,000 10,000 80,000
Total 41 Active Employees 12,500,000 500,000 13,00,000

Footnote: Non-vested benefits are expected to become vested based on projected service completion.

2. Retirees Receiving Benefits

Retiree Current Age Benefit Commencement Date Vested Benefit Form of Payment Actuarial Present Value
Retiree_1 72 01/01/2015 1,500 Single Life Annuity 180,000
Retiree_2 75 07/01/2012 2,100 Joint & Survivor Annuity 220,000
...
Retiree_22 68 03/01/2020 1,800 Single Life Annuity 195,000
Total 22 Retirees 30,500 3,500,000

Footnote: Some retirees listed above are beneficiaries of deceased participants.

3. Other Participants & Beneficiaries

Other Participants & Beneficiaries Current Age Retirement Age Vested Benefit Actuarial Present Value
Terminated_1 58 65 1,000 50,000
Terminated_2 60 65 1,500 75,000
...
Terminated_5 60 65 1,500 65,000
Total 5 Other Participants & Beneficiaries 500,000

Footnote: Includes terminated vested participants who have not yet commenced benefits.

Example Statement of Actuarial Assumptions and Methods

1. Interest Discount Rates

The following segment rates are used for discounting benefit payments:

  • First Segment: 4.00% for benefits payments occuring within 5 years
  • Second Segment: 5.00% for benefits payments occuring between 5 years and before 20 years
  • Third Segment: 6.00% for benefits payments occuring 20 years or later.

2. Mortality Assumptions

Mortality rates are based on the most recent standard mortality tables, adjusted for plan experience.

  • Pre-Retirement Mortality:
    • Male: RP-2014 Employee Mortality Table, projected generationally using Scale MP-2022
    • Female: RP-2014 Employee Mortality Table, projected generationally using Scale MP-2022
  • Post-Retirement Mortality:
    • Male: RP-2014 Healthy Annuitant Mortality Table, projected generationally using Scale MP-2022
    • Female: RP-2014 Healthy Annuitant Mortality Table, projected generationally using Scale MP-2022

3. Assumed Form of Payment

  • Retirement Benefits:
    • Active Employees: 25% Joint and Survivor and 75% Single Lump Sum.
    • Other Participants & Beneficiaries: 25% Joint and Survivor and 75% Single Lump Sum.
  • Death Benefits:
    • Pre-Retirement Death Benefits: 100% Single lump sum payment of retirement benefits.
    • Post-Retirement Death Benefits: $15,000 Single lump sum payment.
  • Plan Administrative Expense:
    • Distribution Expense: $250 is assumed at each benefit commencement date.

4. Actuarial Equivalence Assumptions

Alternative payment forms are converted using the following assumptions:

  • Mortality Table.
  • Applicable Interest Rate: 5.00%.
  • No mortality before benefit commencement.

5. Assumed Retirement Age and Probabilities

Retirement is assumed to occur at the following ages with corresponding probabilities:

Age Retirement Probability (%)
5510%
5612%
5714%
5816%
5918%
6025%
6135%
6250%
Age Retirement Probability (%)
6350%
6450%
6575%
6690%
6790%
6890%
6990%
70+100%

6. Actuarial Cost Method

The plan uses the Unit Credit actuarial cost method for determining liabilities.

Example Statement of Cash Flows
For Period: 1/1/2024 to 12/31/2024

1. Cash - Beginning of Year

Line Description Amount
1.1 Beginning of Year Cash Balance (As of 1/1/2024) 400,000

2. Cash Inflows

Line Description Amount
2.1 Employer Contributions
2.1.1 Received 1,800,000
2.1.2 Receivables Received from Prior Year 200,000
2.2 Participant Contributions 0
2.3 Investment Income
2.3.1 Interest 300,000
2.3.2 Dividends 250,000
2.4 Proceeds from Investments Sold 1,000,000
2.5 Total Cash Inflows (Sum of Line items 2.# above) 3,550,000

3. Cash Outflows

Line Description Amount
3.1 Benefit Payments
3.1.1 Retiree Annuity Payments (1,200,000)
3.1.2 Lump Sum Payments (700,000)
3.2 Purchase of Annuity Contracts (400,000)
3.3 Purchase of Investments (1,000,000)
3.4 Administrative Expenses
3.4.1 Plan Administration (150,000)
3.4.2 Actuarial Fees (50,000)
3.5 Total Cash Outflows (Sum of Line items 3.# above) (3,450,000)

4. Cash - End of Year

4.1 End of Year Cash Balance (As of 12/31/2024)
(Line 1.1 + Line 2.5 - Line 3.5)		 500,000

Example Additional Financial Statement Disclosures

1. Plan Description

The following provides a general overview of the pension plan. For full details, refer to the plan document.

  • Plan Type: The plan is a defined benefit pension plan covering eligible employees.
  • Plan Sponsor: The plan is sponsored by ABC Company.
  • Eligibility: Employees become eligible to participate upon completing one year of service.
  • Normal Retirement Age: 65.
  • Early Retirement Options: Early retirement is available from age 55 with at least 20 years of service.
  • Benefit Formula: Monthly benefit = Years of Service × $10.
  • Funding Policy: Contributions are made by the employer based on actuarial valuations.
  • PBGC Coverage: The plan is covered by the Pension Benefit Guaranty Corporation (PBGC), which provides limited protection to participants' benefits.

2. Accounting Policies

  • Valuation of Investments: Investments are reported at fair value, based on market prices if available.
  • Measurement of Assets: Assets include stocks, bonds, and other investments held in trust.
  • Insurance Contracts: Annuities purchased for certain retirees are excluded from plan assets.
  • Actuarial Present Value of Accumulated Plan Benefits: Calculated using discount rates of 4%, 5%, and 6% and mortality assumptions.
  • Expense Recognition: Administrative expenses paid by the plan are recognized when incurred.

3. Funding and Investment Policy

  • The plan is funded through employer contributions and investment returns.
  • Assets are allocated across equities, fixed income, and alternative investments.
  • The plan follows a long-term investment strategy focused on risk-adjusted returns.

4. Plan Sponsor-Paid Expenses

  • The plan sponsor pays administrative and actuarial expenses.
  • If the sponsor ceases paying expenses, they would be charged to the plan assets.

5. Tax-Qualified Status

  • The plan is intended to be a qualified retirement plan under Section 401(a) of the Internal Revenue Code.
  • The plan has received a favorable determination letter from the IRS.

6. IRS Minimum Funding Requirement

  • The plan is subject to minimum funding requirements under ERISA and the Internal Revenue Code.
  • As of the plan year-end, the funding requirement has been met.

7. Insurance Contract Exclusions

  • Some benefits are provided through insurance contracts, which are not included in plan assets.
  • The plan purchases annuities for retirees when benefits become due.

8. Separate Assets Held by the Plan

  • Amounts set aside for post-retirement medical benefits under 401(h) accounts.
  • Participant rollover contributions maintained separately.

9. Transactions with Related Parties

  • The plan engages in transactions with the plan sponsor and affiliated entities.
  • All transactions are conducted at fair market value.

10. Other Material Disclosures

  • No significant plan amendments were adopted in the current year.
  • Two prior amendments increased the benefit formula as follows:
Date Adopted Date Effective General Description
No amendments in 2024 - -
January 1, 2022 January 1, 2023 Increased benefit formula from $8 per year of service to $10 per year of service.
January 1, 2019 January 1, 2020 Introduced early retirement subsidy for employees with 30 years of service.

11. Plan Termination

  • If the plan is terminated, assets will be allocated according to ERISA regulations.
  • Vested benefits will be distributed to participants and beneficiaries.

12. PBGC Coverage

  • The plan is insured by the PBGC, which guarantees a portion of benefits in case of plan termination.
  • The maximum PBGC guarantee applies based on the plan’s termination date.

13. Risks and Uncertainties

  • The plan is subject to market fluctuations affecting investment returns.
  • Future funding requirements may change based on economic conditions.

14. Recent Accounting Changes

  • The plan has adopted recent changes in ASC 960 to comply with updated disclosure requirements.

Example Changes in Participant Counts Statement

1. Change in Participant Counts

Line Description Active Participants Retirees Other Participants Grand Total
1.1 Beginning of Year Counts (1/1/2024) 40 21 4 65
2.1 New Active Employees
2.1.1 Entered on Beginning of Plan Year +3 — — +3
2.1.2 Entered During Plan Year +2 — — +2
2.1.3 Retroactively Added Participants +1 — — +1
2.2 Employees that Terminated
2.2.1 Terminated Non-Vested -2 — +1 -1
2.2.2 Terminated Vested — — — —
2.3 Rehires +2 — -1 +1
2.4 Retirements -4 +4 — 0
2.5 Deaths
2.5.1 Deceased with Future Benefits Due — -1 +1 0
2.5.2 Deceased with No Benefits Due — -2 — -2
2.6 Paid Out Single Lump Sum Distribution -1 — -2 —
3.1 Net Change in Participant Counts (Sum of all above changes) +1 +1 +1 +3
4.1 End of Year Counts (12/31/2024) 41 22 5 68
Footnotes:
  • Of the retirees, 3 at the beginning of the year and 4 at the end of the year have a beneficiary receiving payments.
  • Of the other participants, 2 at the beginning of the year and 3 at the end of the year are beneficiaries entitled to receive benefits.
  • One terminated participant was classified under "Other Participants" due to a deferred vested benefit.
  • Participants who divorced and had Qualified Domestic Relations Orders (QDROs) applied are counted separately in benefit distribution calculations but not in participant totals above.

Note: The above disclosures are for illustrative purposes and should be tailored to reflect the actual provisions and financial status of the plan.

Glossary of Key Terms (generalized)

Official Cite for Glossary: ASC-960

  • 401(h) Accounts:
    • A component within certain defined benefit pension plans that provides postretirement medical benefits.
    • Established under Section 401(h) of the Internal Revenue Code, allowing employers to fund retiree health benefits in addition to pension benefits.
    • Funds in 401(h) accounts must be used exclusively for medical benefits and are subject to specific tax regulations and limitations.
  • Accumulated Plan Benefits:
    • The benefits that employees have earned under the pension plan terms as of a specified date.
    • These benefits may be payable to:
      • Current retirees or former employees entitled to benefits.
      • Beneficiaries of deceased participants.
      • Active employees who will receive benefits in the future.
  • Actuarial Asset Value:
    • The asset value determined by actuarial methods, often used in funding calculations.
  • Actuarial Present Value of Accumulated Plan Benefits:
    • The estimated current value of future benefits, considering interest rate assumptions and likelihood of payment due to factors like mortality, termination, and retirement.
  • Actuarial Cost Method:
    • A standardized actuarial approach used to determine the allocation of pension costs and the timing of employer contributions.
    • Establishes how pension obligations accumulate and how future benefit payments are funded over time.
    • Different actuarial cost methods may be applied depending on plan funding requirements and accounting standards.
  • Benefits:
    • The payments or services provided to participants under a pension or health and welfare plan.
    • These may include:
      • Health care benefits
      • Life insurance
      • Legal, educational, and advisory services
      • Pension benefits
      • Disability benefits
      • Death benefits
      • Severance or termination-related benefits
  • Benefit Information Date:
    • The date on which the actuarial present value of accumulated plan benefits is measured.
    • Represents a specific point in time used to determine the plan’s benefit obligations based on participant data, plan provisions, and actuarial assumptions.
    • If a plan’s fiscal year-end does not align with a month-end, the plan may elect to measure investments and investment-related accounts (such as liabilities for pending trades) using the month-end closest to the plan’s fiscal year-end.
    • This election must be applied consistently from year to year to ensure comparability in financial reporting.
  • Benefit Security:
    • An assessment of the plan’s ability to pay benefits as required under its terms.
  • Contract Value:
    • The valuation assigned to an unallocated insurance contract, as determined by the issuing insurance entity.
    • Reflects the contract’s accumulated value based on contributions, credited interest, and applicable adjustments.
    • Typically used for insurance contracts that hold pension plan assets but do not allocate funds to individual participants.
  • Contributory Plan:
    • A pension or benefit plan where employees or retirees contribute toward the cost of their benefits.
    • Participation may require mandatory contributions for coverage or offer optional contributions for enhanced benefits.
    • Employee contributions may supplement employer-provided benefits or help fund additional retirement income.
  • Defined Benefit Plan:
    • A pension plan where the amount of benefits to be provided is based on a predetermined formula, usually involving factors such as age, salary, and years of service.
    • Variations include:
      • Defined Benefit Health and Welfare Plans: These plans offer specific health-related benefits or lump-sum payments, which may depend on service or other criteria.
      • Defined Benefit Pension Plans: Provide monthly pension payments based on plan formulas.
      • Defined Benefit Postretirement Plans: Offer retiree benefits such as health coverage or life insurance, based on defined criteria.
  • Defined Contribution Plan:
    • A plan where contributions are made to individual participant accounts, with final benefits determined by the account balance, including contributions, investment earnings, and any allocated forfeitures.
  • Employee:
    • An individual who has provided or is currently providing services covered under a pension or benefits plan.
  • Funding Agency:
    • An entity such as a trustee or insurance provider that holds and manages plan assets.
  • Funding Policy:
    • The strategy outlining how contributions to a pension plan are determined and scheduled.
  • General Account:
    • An insurance company's investment pool where plan assets are combined with other funds instead of being held in a separate account.
  • Liquidation:
    • The process of converting a plan's assets into cash or other forms of value to settle outstanding obligations before ceasing operations.
    • Upon completion, any remaining assets may be distributed to eligible parties, such as participants, creditors, or plan sponsors, depending on regulatory and plan provisions.
    • Liquidation can be voluntary or required by law but does not include scenarios where a plan merges with another or is acquired while continuing operations.
  • Net Assets Available for Benefits:
    • The total plan assets after deducting liabilities, excluding the value of accumulated plan benefits.
  • Net Asset Information:
    • A summary of assets available to fund plan benefits.
  • Nonvested Benefit Information:
    • The estimated present value of benefits that are not yet vested but could become vested in the future.
  • Participant:
    • An individual entitled to benefits under a pension plan, including:
      • Current employees actively earning benefits
      • Former employees with vested benefits
      • Members or former members of trade or employee associations covered by the plan
      • Beneficiaries of participants entitled to receive benefits
  • Pension Benefits:
    • Regular payments, typically made monthly, provided to retired employees or their beneficiaries under the terms of a pension plan.
    • May be based on factors such as years of service, salary history, or a fixed benefit formula.
    • Can include survivor benefits or other provisions for beneficiaries after the retiree's death.
  • Pension Fund:
    • The pool of assets set aside to finance pension benefits for plan participants.
    • Managed by a funding agency, such as a trust or an insurance entity, to ensure the plan can meet its future obligations.
    • Consists of employer and, if applicable, employee contributions, as well as investment earnings on those funds.
  • Plan Administrator:
    • The individual or governing body responsible for overseeing the administration of the pension plan.
    • Ensures compliance with regulatory requirements and is accountable for the accuracy and issuance of the plan’s financial statements.
    • Similar to a business entity’s management, the plan administrator holds responsibility for maintaining accurate records and disclosures.
  • Plan Assets:
    • Funds and investments, such as stocks, bonds, and other financial instruments, that are specifically set aside—typically in a trust—to fund pension benefits.
    • Includes contributions from employers and employees (for contributory plans) and investment earnings, net of benefit payments.
    • Generally, plan assets cannot be accessed by the employer except in specific circumstances, such as when excess assets remain after all benefit obligations are met.
    • Assets not held in a trust or otherwise legally restricted for pension funding purposes are not considered plan assets, even if intended for that use.
    • If a plan has obligations beyond benefit payments, such as administrative expenses or other liabilities, those amounts may reduce the reported value of plan assets.
    • Employer securities held within the plan can be considered plan assets as long as they are transferable.
    • Employer contributions that have been accrued but not yet remitted to the plan are not considered plan assets.
  • Pension Benefits:
    • Payments made to a retiree or beneficiary under a pension plan, typically on a recurring basis.
  • Pension Fund:
    • The pool of assets held by a designated funding agency for the purpose of paying pension benefits.
    • These assets are typically managed in accordance with the plan's funding policy and investment strategy.
  • Plan Assets:
    • Assets designated and restricted for funding pension benefits, typically held in a trust.
    • Common assets include stocks, bonds, cash, and other investments.
    • Plan assets include:
      • Contributions made by the employer and employees (if applicable).
      • Investment earnings generated from plan assets.
      • Less any benefits paid to participants and administrative expenses.
    • Plan assets are generally protected from withdrawal by the employer, except in cases where excess assets exist beyond obligations, subject to legal requirements.
    • Employer contributions accrued but not yet deposited into the plan are not considered plan assets.
    • Employer securities held by the plan are included as assets, provided they are transferable.
  • Reporting Date:
    • The specific date on which the financial position of the plan, including net assets available for benefits, is reported.
    • Typically aligns with the end of the plan year or another designated financial reporting period.
    • Used as the reference point for valuing assets, liabilities, and financial disclosures in the plan’s statements.
  • Retired Life Fund:
    • A segment of plan assets allocated specifically for paying current retirees’ benefits.
  • Service:
    • The period of employment used to determine benefit eligibility under a plan.
    • Classifications include:
      • Past Service: Work performed before the pension plan was established.
      • Prior Service: Work completed before the current actuarial valuation date.
      • Future Service: Employment after the valuation date.
      • Current Service: The service period corresponding to the current valuation year.
  • Sponsor:
    • The entity responsible for establishing and maintaining a pension plan.
    • Depending on the structure of the plan, the sponsor may be:
      • A single employer for company-sponsored plans.
      • An employee organization, such as a union, for plans maintained by labor groups.
      • A joint entity, such as a committee or board of trustees, in cases where multiple employers or both employers and employee organizations manage the plan together.
    • The plan sponsor is generally responsible for funding, administration, and compliance with applicable regulations.
  • Terminating Plan:
    • A pension plan that is in the process of being permanently discontinued, regardless of whether it will be replaced by another plan.
    • May involve distributing assets, purchasing annuities, or other methods to settle benefit obligations for participants.
    • Termination procedures and funding requirements are generally governed by regulatory authorities such as the IRS, DOL, and PBGC.
  • Unallocated Contract:
    • An insurance contract that pools contributions until retirement, at which point annuities or other benefit payments are purchased.
  • Vested Benefits:
    • Benefits that an employee has earned and is entitled to receive, even if they leave the employer.
    • Typically subject to a vesting schedule, which determines how benefits become fully vested over time.
    • Graded vesting allows for partial vesting based on years of service, increasing over time until the full benefit is vested.
    • While vested benefits are legally earned, external factors such as plan funding levels may impact actual benefit payments.
  • Vested Benefit Information:
    • The actuarial present value of accumulated plan benefits that are vested.
    • Represents the portion of benefits that participants have earned and are entitled to receive, regardless of future service with the employer.

References to Accounting Standards Codification

The following sections within ASC Topic 960 provide the core guidance for Defined Benefit Pension Plans:

Full ASC-960
    Subsections:
    • ASC 960-10: Overall
      Outlines scope, background, and requirements for defined benefit pension plans, including key definitions and general overview.
    • ASC 960-20: Accumulated Plan Benefits
      Provides guidance on calculating and presenting the actuarial present value of accumulated plan benefits, along with assumptions used and required disclosures.
    • ASC 960-30: Net Assets Available for Plan Benefits
      Addresses the accrual-basis presentation for net assets available for benefits and how changes in net assets are disclosed.
    • ASC 960-40: Terminating Plans
      Deals with accounting for and disclosure requirements of plans that are terminating or in liquidation.
    • ASC 960-205: Presentation of Financial Statements
      Provides detail on the required financial statements for a defined benefit pension plan (statement of net assets available for benefits, statement of changes in net assets available for benefits, and required note disclosures).
    • ASC 960-310: Receivables
      Explains when contributions receivable (from employers, participants, or other funding sources) are recorded and how to present them.
    • ASC 960-325: Investments—Other
      Covers requirements to measure plan investments at fair value or contract value, as well as related disclosures (e.g., insurance contracts, master trusts).
    • ASC 960-360: Property, Plant, and Equipment
      Governs plan-owned fixed assets used in plan operations and explains how such assets are measured (generally at cost less depreciation).
© Pension Resource - For informational purposes only. Last Edited 2/23/2025