Southeast Technology provides postretirement health care benefits to employees.

Question

Southeast Technology provides postretirement health care benefits to employees. On January 1, 2018, the following plan-related data were available:

On January 1, 2018, Southeast amends the plan in response to spiraling health care costs. The amendment establishes an annual maximum of $4,000 for medical benefits that the plan will provide. The actuary determines that the effect of this amendment is to decrease the APBO by $100,000. Management amortizes prior service cost on a straight-line basis. The interest rate is 7%. The service cost for 2018 is $124,000.

Required:
1. Complete the below table to calculate the prior service cost amortization for 2018.
2. Complete the below table to calculate the postretirement benefit expense for 2018.

(s in 000s) Prior service cost-originated in 2013 Accumulated postretirement benefit obligation Fair value of plan assets Average remaining service period to retirement Average remaining service period to full eligibility $ 64 630 one 20 years (same in previous 10 yrs 15 years (same in previous 10 yrs.)

Explanation / Answer

Answer

1.calculation of the prior service cost amortization for 2018.

2.calculation of the postretirement benefit expense for 2018.

Interest cost = ($630-$100)*7% = $37.10

Particulars Amount($ in 000s) Prior service cost $64 Less:Reduction for amendment ($100) Negative amount of prior service cost to be amortized $36 number of years 15 years Prior service cost amortization ($36/15) $2.4

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