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Curtailments of Defined Benefit Pension Plans and for Termination Benefits APB Opinion No. 20, Accounting Changes ISSUE



An employer sponsors a defined benefit pension plan. The employer settles its pension obligation through the purchase of insurance annuity contracts from an insurance company. The employer may or may not terminate the defined benefit pension plan. The employer appropriately applies the guidance of Statement 88. Subsequently, the insurance company becomes insolvent and is unable to meet all of its obligations under the annuity contracts. The employer decides to make up some portion or all of any deficiency in annuity payments to the retirees. The issue is how the employer should account for the cost of making up the deficiency in annuity payments to the retirees. EITF DISCUSSION The Task Force reached a consensus that the employer should recognize a loss in the circumstances described above at the time the deficiency is assumed by the employer if any gain was recognized on the original settlement. The loss recognized would be the lesser of (1) any gain recognized on the original settlement or (2) the amount of the benefit obligation assumed by Copyright © 1991, Financial Accounting Standards Board Not for redistribution Page 1the employer. The excess of the obligation assumed by the employer over the loss recognized should be accounted for as a plan amendment or plan initiation in accordance with paragraphs 24 through 28 of Statement 87. Subsequent accounting should be in accordance with Statements 8

Year: 1991
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