Question

Swan-Nator has a defined benefit pension plan with a settlement rate of 6% and they expect the long-run rate of return on plan assets to be 8%. The tax rate is 40% and Swan-Nator made no plan amendments in 2007. The following additional information about their pension plan during this period is available:

Description	12/31/2006	12/31/2007
Average remaining working life of covered employees (in years)	14	13
PBO with actuarial changes	$ 850,000	$ 910,000
Expected PBO prior to actuarial changes	Not Needed	$ 890,000
Actual fair market value of plan assets (after receiving the annual funding check of $90,000 written on 12/31/07)	$ 190,000	$ 267,000
Unamortized prior service cost	$ 235,000	$ 195,000
Unamortized pension loss (gain)	$    99,000	??
Service cost	Not Needed	$   30,000

Required:

1. Determine the amount of pension gain or loss to be amortized in 2007. Swan-Nator uses the corridor method of amortization.

2. Based on the PBO Swan-Nator expected to have before the change in actuarial assumptions, compute the benefits Swan-Nator must have paid out in 2007.

3. Using your calculation of the benefits paid, calculate Swan-Nator’s 2007 actual return on plan assets. Based on your computed value, also compute Swan-Nator’s 2007 asset gain or loss.

Answer 1