Definitions of Terms

A-E

Accrued benefit obligation

Actuarial present value of benefits (whether vested or nonvested) attributed by the pension benefit formula to employee service rendered before a specified date and based on employee service and compensation (if applicable) prior to that date. IAS 19 requires that only the accrued benefit method be used to compute employee benefit obligations.

Accrued benefit valuation methods

Actuarial valuation methods that reflect retirement benefits based on service rendered by employees to the date of the valuation. Assumptions about projected salary levels to the date of retirement must be incorporated, but service to be rendered after the balance sheet date is not.

Accrued pension cost

Cumulative net pension cost accrued in excess of the employer's contributions.

Accrued postretirement benefit obligation

The actuarial present value of benefits attributed to employee service rendered to a particular date. Prior to an employee's full eligibility date, the accrued postretirement benefit obligation as of a particular date for an employee is the portion of the expected postretirement benefit obligation attributed to that employee's service rendered to that date. On and after the full eligibility date, the accrued and expected postretirement benefit obligations for an employee are the same.

Actuarial present value

Value, as of a specified date, of an amount or series of amounts payable or receivable thereafter, with each amount adjusted to reflect (1) the time value of money (through discounts for interest) and (2) the probability of payment (by means of decrements for events such as death, disability, withdrawal, or retirement) between the date specified and the expected date of payment.

Actuarial valuation

The process used by actuaries to estimate the present value of benefits to be paid under a retirement plan and the present values of plan assets and sometimes also of future contributions.

Amortization

Usually refers to the process of reducing a recognized liability systematically by recognizing revenues or reducing a recognized asset systematically by recognizing expenses or costs. In pension accounting, amortization is also used to refer to the systematic recognition in net pension cost over several periods of previously unrecognized amounts, including unrecognized prior service cost and unrecognized net gain or loss.

Attribution

Process of assigning pension benefits or cost to periods of employee service.

Career-average-pay formula (career-average-pay plan)

Benefit formula that bases benefits on the employee's compensation over the entire period of service with the employer. A career-average-pay plan is a plan with such a formula.

Contributory plan

Pension plan under which employees contribute part of the cost. In some contributory plans, employees wishing to be covered must contribute; in other contributory plans, employee contributions result in increased benefits.

Current service cost

The cost to the employer under a retirement benefit plan for the services rendered by employees during the period, exclusive of cost elements identified as past service cost, experience adjustments, and the effects of changes in actuarial assumptions.

Curtailment

Event that significantly reduces the expected years of future service of present employees or eliminates, for a significant number of employees, the accrual of defined benefits for some or all of their future services. Curtailments include (1) termination of employee's services earlier than expected, which may or may not involve closing a facility or discontinuing a segment of a business, and (2) termination or suspension of a plan so that employees do not earn additional defined benefits for future services. In the latter situation, future service may be counted toward vesting of benefits accumulated based on past services.

Defined benefit pension plan

Any postemployment benefit plan other than a defined contribution plan. These are generally retirement benefit plans under which amounts to be paid as retirement benefits are determinable, usually by reference to employees' earnings and/or years of service. The fund (and/or employer) is obligated either legally or constructively to pay the full amount of promised benefits whether or not sufficient assets are held in the fund.

Defined contribution pension plan

Benefit plans under which amounts to be paid as retirement benefits are determined by the contributions to a fund together with accumulated investment earnings thereon; the plan has no obligation to pay further sums if the amounts available cannot pay all benefits relating to employee services in the current and prior periods.

Employee benefits

All forms of consideration to employees in exchange for services rendered.

Equity compensation benefits

Benefits under which employees are entitled to receive employer's equity financial instruments, or which compensate employees based on the future value of such instruments.

Equity compensation plans

Formal or informal arrangements to provide equity compensation benefits.

Expected long-term rate of return on plan assets

Assumption as to the rate of return on plan assets reflecting the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the projected benefit obligation.

Expected postretirement benefit obligation

The actuarial present value as of a particular date of the benefits expected to be paid to or for an employee, the employee's beneficiaries, and any covered dependents pursuant to the terms of the postretirement benefit plan.

Expected return on plan assets

Amount calculated as a basis for determining the extent of delayed recognition of the effects of changes in the fair value of assets. The expected return on plan assets is determined based on the expected long-term rate of return on plan assets and the market related value of plan assets.

Experience adjustments

Adjustments to benefit costs arising from the differences between the previous actuarial assumptions as to future events and what actually occurred.

F-P

Fair value

Amount that an asset could be exchanged for between willing, knowledgeable parties in an arm's-length transaction.

Final-pay plan

A defined benefit plan that promises benefits based on the employee's remuneration at or near the date of retirement. It may be the compensation of the final year, or of a specified number of years near the end of the employee's service period.

Flat-benefit formula (flat-benefit plan)

Benefit formula that bases benefits on a fixed amount per year of service, such as $20 of monthly retirement income for each year of credited service. A flat-benefit plan is a plan with such a formula.

Fund

Used as a verb, to pay over to a funding agency (as to fund future pension benefits or to fund pension cost). Used as a noun, assets accumulated in the hands of a funding agency for the purpose of meeting pension benefits when they become due.

Funding

The irrevocable transfer of assets to an entity separate from the employer's enterprise, to meet future obligations for the payment of retirement benefits.

Gain or loss

Change in the value of either the projected benefit obligation or the plan assets resulting from experience different from that assumed or from a change in an actuarial assumption.

Interest cost component (of net periodic pension cost)

Increase in the present value of the accrued benefit obligation due to the passage of time.

Measurement date

Date as of which plan assets and obligations are measured.

Mortality rate

Proportion of the number of deaths in a specified group to the number living at the beginning of the period in which the deaths occur. Actuaries use mortality tables, which show death rates for each age, in estimating the amount of pension benefits that will become payable.

Net periodic pension cost

Amount recognized in an employer's financial statements as the cost of a pension plan for a period. Components of net periodic pension cost are service cost, interest cost (which is implicitly presented as part of service cost), actual return on plan assets, gain or loss, amortization of unrecognized prior service cost, and amortization of the unrecognized net obligation or asset existing at the date of initial application of IAS 19.

Other long-term employee benefits

Benefits other than postemployment, termination and stock equity compensation benefits, which do not fall due wholly within one year of the end of the period in which service was rendered.

Past service cost

The actuarially determined cost arising on the introduction of a retirement benefit plan, on the making of improvements to such a plan, or on the completion of minimum service requirements for eligibility in such a plan, all of which give employees credit for benefits for service prior to the occurrence of one or more of these events.

Pay-as-you-go

A method of recognizing the cost of retirement benefits only at the time that cash payments are made to employees on or after retirement.

Plan amendment

Change in terms of an existing plan or the initiation of a new plan. A plan amendment may increase benefits, including those attributed to years of service already rendered.

Plan assets

The assets held by a long-term employee benefit fund, and qualifying insurance policies. Regarding assets held by a fund, these are assets (other than nontransferable financial instruments issued by the reporting entity) that both

1. Are held by a fund that is legally separate from the reporting entity and exists solely to pay or fund employee benefits, and

2. Are available to be used only to pay or fund employee benefits, are not available to the reporting entity's own creditors (even in the event of bankruptcy), and cannot be returned to the reporting entity unless either

   1. The remaining assets of the fund are sufficient to meet all related employee benefit obligations of the plan or the entity, or

   2. The assets are returned to the reporting entity to reimburse it for employee benefits already paid by it.

Regarding the qualifying insurance policy, this must be issued by a nonrelated party if the proceeds of the policy both

1. Can be used only to pay or fund employee benefits under a defined benefit plan, and

2. Are not available to the reporting entity's own creditors (even in the event of bankruptcy) and cannot be returned to the reporting entity unless either

   1. The proceeds represent surplus assets that are not needed for the policy to meet all related employee benefit obligations, or

   2. The proceeds are returned to the reporting entity to reimburse it for employee benefits already paid by it.

Postretirement benefits

All forms of benefits, other than retirement income, provided by an employer to retirees. Those benefits may be defined in terms of specified benefits, such as health care, tuition assistance, or legal services, that are provided to retirees as the need for those benefits arises, or they may be defined in terms of monetary amounts that become payable on the occurrence of a specified event, such as life insurance benefits.

Prepaid pension cost

Cumulative employer contributions in excess of accrued net pension cost.

Prior service cost

Cost of retroactive benefits granted in a plan amendment.

Projected benefit obligation

The actuarial present value as of a date of all benefits attributed by the pension benefit formula to employee service rendered prior to that date. The projected benefit obligation is measured using assumptions as to future compensation levels if the pension benefit formula is based on those future compensation levels (pay-related, final-pay, final-average-pay, or career-average-pay plans).

Projected benefit valuation methods

Actuarial valuation methods that reflect retirement benefits based on service both rendered and to be rendered by employees, as of the date of the valuation. Contrasted with accumulated benefit valuation methods, projected benefit valuation methods will result in a more level assignment of costs to the periods of employee service, although this will not necessarily be a straight-line allocation. Assumptions about projected salary levels must be incorporated. This was the allowed alternative method under the prior version of IAS 19, but is prohibited under the current standard.

R-V

Retirement benefit plans

Formal or informal arrangements whereby employers provide benefits for employees on or after termination of service, when such benefits can be determined or estimated in advance of retirement from the provisions of a document or from the employers' practices.

Retroactive benefits

Benefits granted in a plan amendment (or initiation) that are attributed by the pension benefit formula to employee services rendered in periods prior to the amendment. The cost of the retroactive benefits is referred to as prior service cost.

Return on plan assets

Interest, dividends and other revenues derived from plan assets, together with realized and unrealized gains or losses on the assets, less administrative costs including taxes payable by the plan.

Service

Employment taken into consideration under a pension plan. Years of employment before the inception of a plan constitute an employee's past service; years thereafter are classified in relation to the particular actuarial valuation being made or discussed. Years of employment (including past service) prior to the date of a particular valuation constitute prior service.

Settlement

Transaction that (1) is an irrevocable action, (2) relieves the employer (or the plan) of primary responsibility for a pension benefit obligation, and (3) eliminates significant risks related to the obligation and the assets used to effect the settlement. Examples include making lump-sum cash payments to plan participants in exchange for their rights to receive specified pension benefits and purchasing nonparticipating annuity contracts to cover vested benefits.

Short-term employee benefits

Benefits other than termination and equity compensation benefits which are due within one year after the end of the period in which the employees rendered the related service.

Terminal funding

A method of recognizing the projected cost of retirement benefits only at the time an employee retires.

Termination benefits

Employee benefits payable as a result of the entity's termination of employment before normal retirement or the employee's acceptance of early retirement inducements.

Unrecognized prior service cost

Portion of prior service cost that has not been recognized as a part of net periodic pension cost.

Vested benefits

Those benefits that, under the conditions of a retirement benefit plan, are not conditional on continued employment.