Postretirement benefits; negative plan amendment
Response to the following problem:
Southeast Technology provides postretirement health care benefits to employees. On January 1, 2016, the following plan-related data were available:
($ in 000s)
Prior service cost-originated in 2011 $ 50
Accumulated postretirement benefit obligation 530
Fair value of plan assets none
Average remaining service period to retirement 20 years (same in previous 10 yrs.)
Average remaining service period to full eligibility 15 years (same in previous 10 yrs.)
On January 1, 2016, Southeast amends the plan in response to spiraling health care costs. The amendment establishes an annual maximum of $3,000 for medical benefits that the plan will provide. The actuary determines that the effect of this amendment is to decrease the APBO by $80,000. Management amortizes prior service cost on a straight-line basis. The interest rate is 8%. The service cost for 2016 is $114,000.
Required:
1. Calculate the prior service cost amortization for 2016.
2. Calculate the postretirement benefit expense for 2016.