Psak 24, Retirement Benefit Cost

statement of

sfas no.

financial accounting standards

24 indonesian institute of accountants accounting for retirement benefit costs

this is an unofficial publication of iai (indonesian institute of accountants). if there is any inconsistency between indonesian and english version of the sfas, the user of 1

accounting for retirement benefit cost

sfas no. 24

sfas should follow the indonesian version as the official publication of the institute.

accounting for retirement benefit cost

sfas no. 24

statement of financial accounting standards (sfas) no. 24, accounting for retirement benefit cost , was adopted by the indonesian accounting principles committee on august, 24, 1994 and ratified by the national council of the indonesian institute of accountants on september 7, 1994. compliance with the policies contained in this statement is not obligatory in the case of immaterial items. jakarta, september 7, 1994 national council indonesian institute of accountants indonesian accounting principles committee hans kartikahadi jusuf halim hein g. surjaatmadja katjep k. abdoelkadir jan hoesada m. ashadi mirza mochtar ipg. ary suta sobo sitorus timoty marnandus mirawati sudjono

chairman secretary member member member member member member member member member

accounting for retirement benefit cost

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contents paragraphs introduction objective scope definition types of plans accounting for retirement benefit costs

01 - 10

explanation defined contribution plans recognition of retirement benefit expenses disclosure defined benefit plans retirement benefit expenses recognition of current service costs recognition of retirement benefit costs other than service costs actuarial valuation methods disclosure

11 - 35 11 - 16 11 - 14 15 - 16 17 - 30 17 18 - 20

statement of financial accounting standard no 24 accounting for retirement benefit costs defined contribution plans recognition of retirement benefit expenses disclosure defined benefit plans recognition of current service cost recognition of retirement benefit costs other than current service costs actuarial valuation method disclosure transition effective date appendix

01 - 04 05 06 - 08 09 - 10

21 - 30 31 - 33 34 - 35 36 - 47 37 - 38 37 38 39 - 45 39 40 - 42 43 - 44 45 46 47

introduction objective the provision of retirement benefits is a significant element of an enterprise’s remuneration package for its employees. from the employer’s point of view, the main issues in accounting for retirement benefits are that the cost of providing retirement benefits are properly accounted for and that appropriate disclosures are made in the financial statements of the employer. the objective of this statement is to prescribe when the cost of providing retirement benefits should be recognized as an expense, how much to recognize and what information should be disclosed in the employer’s financial statements in relation with the plans. scope 01 this statement should be applied in accounting for the employer’s cost of retirement benefits. 02 this statement does not address other forms of employee welfare, like severance pay, deferred compensation arrangements, medical and welfare plans, bonus plans, etc. obligatory workers’ insurance imposed by the government is also excluded from the scope of this statement. 03 sfas no. 18, accounting by retirement funds, addresses accounting and reporting by retirement funds as an entity. this statement therefore complements sfas no. 18. 04 this statement applies to defined benefit plans and defined contribution plans as defined under prevailing statutory requirements. definitions 05

the terms used in this statement are defined as follows:

plans are all programs that provide retirement benefits for participants. retirement benefit funds represent a legal entity that arranges and manages a program that provides retirement benefits. a retirement fund regulation is a regulation consisting of provisions that are used as a basis to conduct a plan.

defined contribution plans are plans in which the amounts of contribution to be paid are fixed

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by retirement fund regulations and all contributions, together with the investment earnings, are recorded in the participants’ accounts as retirement benefits. defined benefit plans are plans in which the amounts of benefit are fixed by the retirement fund regulations or any other plan that does not represent a defined contribution plan. employer retirement benefit fund is a retirement fund established by an individual or an entity employing staff, as a founder, to conduct defined benefit plans of defined contribution plans for the interest of a part or all of its employees, as participants, ad the resulting liability to the employee. financial institution retirement benefit fund is a retirement fund established by a bank or life insurance enterprise to manage defined contribution plans for individual, either employees or independent workers. this fund is distinct from the related employer retirement funds for bank employees or life insurance enterprise employees. a retirement benefit is a periodic payment that is paid to the participant at the time and in the manner stated in the retirement fund regulations. a participant is every person that fulfills the required retirement fund regulations in order to be eligible to receive a retirement benefit. an employer is an enterprise or sole proprietorship that has a plan for its employees. the employer could be the founder, founder’s partner or enterprise/sole proprietorship which enrolls its employees in a financial institution retirement fund. a founder is: a)

an individual or an entity that establishes employer retirement fund; or

(b)

a bank or life insurance enterprise that establishes a financial institution retirement fund.

a founder’s partner is an employer who participates in a founder employer retirement fund for the interest of a portion or all its employees. funding is the non-refundable asset contributions paid by the employer, or by the employer and the participant, or by the participant to provide retirement funds in order to meet the obligations for payment of retirement benefits in the future. actuarial valuation is the process used by actuaries to estimate the present value of retirement benefits which should be paid and average remaining working life of plan participants as well as recommend the current service cost and installments required to be made to the retirement fund.

the accrued benefit valuation method is an actuarial valuation method which reflects the value of retirement benefits based on services already rendered by the employees as of the valuation

date. this method may include assumptions of salary level projections through the retirement date. the projected benefit valuation method is an actuarial valuation method which reflects the value of retirement benefits based on both services already rendered and services expected to be rendered in the future by the employees as of valuation date. this method may include assumptions of salary level projections through the retirement date. current service cost is the cost to an employer under a defined benefit plan for services rendered by participants in the current period. past service cost is the cost to an employer under a defined benefit plan for services rendered until the actuarial valuation date by participants and resulting from: a)

the introduction of a plan; or

(b)

amendments to the plan

the present value of accumulated retirement benefit (or actuarial present value of promised retirement benefits) is the present value of the expected retirement benefit plan payable by retirement fund to support employees and retirees based on service already rendered. experience adjustments are adjustments to the value of retirement benefits resulting from the differences between previous actuarial assumptions and what has actually occurred. types of plans 06 for the purpose of this statement, plans are classified as either defined contribution plans or defined benefit plans. 07 under a defined contribution plan, the amount received by participants on retirement is determined by reference to the amount of contributions paid by the employer and the participant, and the performance of that fund. an employer’s obligation is to make the contributions as determined by the retirement fund regulations. an actuary’s assistance is not necessary, except to estimate the amount of future retirement benefits that may be achievable by participants on retirement which are based on present contribution levels and estimates of the performance of the fund.

08 under a defined benefit plan, the amount of a participant’s future retirement benefits is determined by reference to a retirement benefit formula, which normally include variables like years of service and retirement income. the employer’s obligation is to provide for the amount of retirement benefits which will be paid to participants on retirement. an actuary’s assistance is necessary to estimate the amount of actuarial liability, to reassess the actuarial assumptions

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and to recommend the future contribution to be paid. accounting for retirement benefit costs 09 the recognition of retirement benefit cost by an employer arises as services are rendered by the participants who will be entitled to receive such benefits.consequently, the cost of retirement benefits is recognized as an expense in the periods during which the services are rendered. the recognition of retirement benefit costs only when employees retire or receive retirement benefits does not reflect allocation of those costs to the periods in which the services were rendered. 10 the amount of retirement benefit cost recognized as an expense in a period is not necessarily the same amount as the contribution paid by the employer to the retirement fund. there is a clear distinction between the funding of retirement benefits and the allocation of the cost of providing those benefits for purposes of recognizing the expense. funding is a financial procedure. in determining the periodic amounts to be contributed, the employer’s decision may be influenced by such factors as the availability of cash/financial conditions and tax considerations. in contrast, the objective of accounting for retirement benefit costs is to ensure that the cost of the retirement benefit costs is recognized as an expense as services are rendered by the participants explanation defined contribution plans recognition of retirement benefit expense 11 under a defined contribution plan, the employer’s contributions with respect to service in a particular period should be recognized as an expense in that period. 12 the employer’s contribution to a defined contribution plan is usually determined by a formula stated under the retirement fund regulations. therefore, the retirement benefit expense recognized is normally the contribution due for the period. 13 if an employer agrees to make additional contributions in a certain period, the increased contributions are recognized as an expense in the periods during which the associated service are rendered by employees. if the increased contributions are granted by reference to existing employees for their services in prior periods, ad are in return for services to be rendered by existing employees in the current and future periods, the increased contributions are recognized as an expense systematically over the expected remaining working lives of those employees. when the additional contributions relate to retired employees, the contributions are recognized as an expense in the period in which the promise of additional contributions is made, since no further services are expected to be received by the employer from those participants. 14 an employer’s contributions determine the amount of the retirement benefit expense and the amount of the obligation which should be recognized by the employer for the period. therefore, when the program is terminated, it is usually not necessary to make an adjustment

to recognize expenses and additional obligations. however, to the extent that additional contributions have been agreed to but not recognized as an expense, the employer should recognize the additional contributions as a liability when it is known that there is a probability of termination of the plan. disclosure 15 the financial statements for employers who provide defined contribution retirement programs should disclose the following information: (a)

in the balance sheet, the total liability resulting from the difference between the amounts funded by the employer since the inception of the program, and the amounts recognized as expenses over the same period;

(b)

in the income statement, the amounts recognized as a retirement benefit expense during the related period;

(c)

in the notes to the financial statements : (i)

a general description of the plan, including employees or employee groups participating in the program;

(ii)

any other significant matters related to the plan that may affect the comparability of the financial satatements in the period with those of the previous periods.

16 when an employer has more than one defined contribution plan, the disclosures in the financial statements may be reported in the total for all such programs, or separately for each program, or several groupings whichever is considered to be the more informative.

defined benefit plans retirement benefit expense 17

under a defined benefit plan, the expense in the current period consists of:

(a)

the current service cost;

(b)

amounts recognized in the current period with respect to past service costs of current and retired employees, experience adjustments and changes in actuarial assumptions; and

(c)

cost resulting of any plan termination, and curtailment of the number of participants.

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recognition of current service costs 18 the current service cost of a defined benefit plan should be recognized as an expense in the current period. 19 retirement benefit costs in defined benefit plans, especially those that promise retirement benefits based on remuneration levels at or near retirement, are difficult to estimate. the amount of the employer’s obligation under such programs is usually uncertain because there are many variables that influence the amount of the ultimate retirement benefits, and hence, the cost of these benefits. this uncertainty is likely to remain for a long period of time until the retirement benefits are received by the participants. for example, the amount of future retirements benefits may be determined by employees’ remuneration at retirement and by their years of service, both of which are uncertain. moreover, in estimating the obligation, assumptions need to be made regarding future conditions and events which are largely outside the employer’s control, such as employee turnover levels and investment earnings of the retirement fund. furthermore, these long-term uncertainties may give rise to changes of estimates that can have a very significant effect on current service costs. 20 because of the potentially significant effect of differences between assumptions and actual experience, it is necessary to obtain actuarial valuations at appropriate intervals. recognition of retirement benefit costs other than current service costs (i)

existing employees

21 past service costs, experience adjustments, the effects of changes in actuarial assumptions and the effects of program amendments with respect to existing employees should be recognized as an expense or as income systematically over the estimated average remaining working lives of those employees. except in the situations covered under paragraph 26 and except in the case of certain program amendments when the use of a shorter time period is necessary to reflect the economic benefits received by the employer.

22 past service costs arise upon the introduction of a plan for services already rendered by participants prior to the introduction of the plan or upon the making of amendments to the plan for services rendered prior to the amendment. a plan could provide additional benefits to existing employees when retirement benefits are deemed to be inadequate, because of inflation or for other reasons, as long as the additional benefits do not exceed the maximum benefits allowable under prevailing laws and regulations. such entitlements to retirement benefits are in return for services to be rendered by those employees in the future. therefore, the past service cost for existing employees is usually allocated over the current and future periods during which the services are to be rendered by the participants, regardless of the fact that these costs are computed by reference to employee service in previous periods. 23 experience adjustments arise because actual events inevitably differ from actuarial assumptions. for example, the retirement fund’s investment result may differ from the long-

term investment rate of return on investment assumed by the actuary in the last actuarial valuation. these experience adjustments may give rise to either expense or income. the actuarially determined cost is intended to provide a more reliable measure of expenses in each period rather than expenses determined by actual experience. furthermore, in the long term, experience adjustments may offset one another. therefore, experience adjustments are usually allocated over the expected remaining working lives of existing employees. 24 changes in actuarial assumptions are made only when actual experience in the long term consistently differs from the original actuarial assumptions. these changes may give rise to expenses or income, which are treated in a similar manner as changes in accounting estimates (see sfas no.25, net profit or loss for the period, fundamental errors and changes in accounting policies). therefore, the effects of changes in actuarial assumptions are usually allocated over the expected average remaining working lives of existing employees. 25 retirement benefit costs, other than current service costs for existing employees, may provide economic benefits over a shorter time period than the expected average remaining working lives of the employees concerned. such costs are recognized as an expense over that shorter time period. for example, when program amendments are made regularly, the additional cost may be recognized as an expense or income systematically over the period to the next expected plan amendment.

(ii)

plan termination and curtailments

26 when it is probable that a defined benefit plan will be terminated or that there will be a significant curtailment of the number of participants, then : (a)

any resulting increase in the retirement benefit costs should be immediately recognized as an expense; and

(b)

any resulting gain should be recognized as income in the period in which the termination of the retirement fund, or the curtailment of the number of participants of the plan occurs; taking into consideration the prevailing laws and regulations.

27 a curtailment occurs either when there is a significant reduction in the number of employees covered by a program or when an element of future service with respect to existing employees will no longer qualify for benefits. a curtailment may arise from an isolated event, such as the closing of a plant or discontinuation of a segment, that results in a significant reduction in the number of employees.

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28 the gain or loss arising from a program termination or curtailment of the number of participants includes proportion of past service costs, actuarial adjustments, the effect of changes in actuarial assumptions and the effect of program amendments which have not previously been recognized as income or expenses. (iii)

retired employees

29 taking into consideration that the employer’s obligation to retired participants is regulated by the retirement fund regulations, the actuarial present value amount resulting from amended retirement benefits in respect of retired employees is recognized as an expense or as income in the period in which the amendments are made. if the amount cannot be estimated, the reasons should be disclosed. 30 the effect of providing amended retirement benefits for retired employees should be recognized as an expense or as income in the period in which the plan amendment is made since no further benefits in the form of future services are expected to be received by the employer from the retired employees, taking into consideration the employer’s obligation as regulated by the retirement fund regulations. actuarial valuation methods 31 a number of actuarial valuation methods have been developed to estimate the employer’s obligation under defined benefit plans. while these methods are primarily designed for funding purposes, they are also frequently used for accounting purposes to determine the retirement benefit expense to be recognized each period. several actuarial valuation methods are described in the appendix of this statement.

32 retirement benefit costs are determined based on a single actuarial valuation method which is applied consistently over each period. if the valuation method is not used consistently, the reasons should be disclosed. 33 the effect of a change in the actuarial valuation method from one method to another method should be accounted for and disclosed in a similar manner as a change in accounting policy in accordance with sfas no.25, net profit or loss for the period, fundamental errors and changes in accounting policies. disclosure 34 the financial statements for employers who provide a defined benefit plan should disclose the following information : (a)

in the balance sheet, the total liability resulting from the difference between amounts funded by the employer since the inception of the program, and the amounts recognized as expenses (or which are charged to retained earnings due to a change in accounting policy) over the same period;

(b)

in the income statement, the amount recognized as retirement benefit expenses during the period;

(c)

in the notes to the financial statements: (i)

a general description of the plan, including employees or employee groups participating in the program;

(ii)

the accounting policies adopted by the employer for retirement benefit costs, including the amortization method for past service costs, experience adjustment, the effect of changes in actuarial assumptions and the effect of amendments to the program and the changes in actuarial valuation methods used by the actuary (see sfas no. 1, disclosure on accounting policies);

(iii) the funding policy used; (iv) the principal actuarial assumptions used in determining the retirement benefit cost and any significant changes in those assumptions (if any); (v)

the actuarial obligations, the fair value of the retirement fund’s net assets and the difference between actuarial obligations and the fair value of the retirement fund’s net assets (see sfas no.18, accounting for retirement funds);

(vi) the date of the most recent actuarial valuation, the name of the actuary and the frequency in which valuations are made; and

(vii) any other significant matters related to the retirement benefits, including the effects of a program termination and curtailment, that may affect the comparability of the financial statements with those of prior periods. 35 when an employer has more than one defined benefit plan, the disclosures in the financial statement may be reported in total for all such programs or separately for each program, or several groupings, whichever is considered to be the most informative. however, the value of information is decreased if the amount of surplus from one or several programs is offset against a deficit in another program, therefore such disclosure is not appropriate.

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statement of financial accounting standards number 24 accounting for retirement benefit costs statement of financial accounting standards no.24 consists of paragraphs 36 - 47. this statement should be read in the context of paragraphs 1-35. 36

this statement should be applied in accounting for the employer’s cost of retirement benefits.

defined contribution plans recognition of retirement benefit expenses 37 under a defined contribution plan, the employer’s contribution with respect to service in a particular period should be recognized as an expense in that period. disclosure 38 the financial statements for employers who provide defined contribution plans should disclose the following information : (a)

in the balance sheet, the total liability resulting from the difference between the amounts funded by the employer since the inception of the program, and the amounts recognized as expenses over the same period.

(b)

in the income statement, the amounts recognized as retirement benefit expense during the related period; and

(c)

in the notes to the financial statements, (i)

a general description of the plan, including employees or employee groups participating in the plan; and

(ii)

any other significant matters related to the plan that may affect the comparability of the financial statements in the period with those of the previous period.

defined benefit plans recognition of current service cost 39 under a defined benefit plan, the current service costs should be recognized as an expense in the current period. recognition of retirement benefit cost other than current service costs

40 past services costs, experience adjustments, the effects of changes in actuarial assumptions and the effects of program amendments with respect to existing employees should be recognized as an expense or as income systematically over the estimated average remaining working lives of those employees, except in the situations covered under paragraph 42 and except in the case of certain program amendments when the use of a shorter time period in recognizing expense or income is necessary to reflect the economic benefits received by the employer. 41 when it is probable that a defined benefit plan will be terminated or that there will be a significant curtailment in the number of participants, then: (a)

any resulting increase in the employer’s retirement benefit cost should be immediately recognized as an expense; and

(b)

any resulting gain should be recognized as income in the period in which the termination of the retirement fund, and the curtailment of the number of participants of the plan occurs; taking into consideration prevailing laws.

42 taking into consideration the employer's obligation to retired participants is regulated by retirement fund regulations, the actuarial present value amount resulting from amended retirement benefit in respect of retired participants is recognized as an expense or as income in the period in which the amendments are made. if the amount cannot be estimated, the reasons should be disclosed. actuarial valuation method 43 retirement benefit costs are determined based on a single actuarial valuation method which is applied consistently over each period. if the valuation method is not used consistently, the reasons should be disclosed. 44 the effect of a change in the actuarial valuation method from one method to another method should be accounted for and disclosed in a similar manner as a change in accounting policy in accordance with sfas no.25, net profit or loss for the period, fundamental errors and changes in accounting policies. disclosure 45 the financial statements for employers who provide a defined benefit plan should disclose the following information : (a)

in the balance sheet, the total liability resulting from the difference between the amounts funded by the employer since the inception of the program, and the amounts recognized as expenses (or which are charged to retained earnings due to a change in accounting policy) over the same period;

(b)

in the income statement, the amount recognized as a retirement benefit expense during the period;

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(c)

sfas no.24

in the notes to the financial statements: (i)

a general description of the plan, including participating in the program;

employees or employee groups

(ii)

the accounting policies adopted by the employer for retirement benefit costs, including the amortization method for past service costs, experience adjustments, the effect of change in actuarial assumptions and the effect of amendments to the program and the changes in actuarial valuation methods used by the actuary (see sfas no.1, disclosure of accounting policies);

(iii) the funding policy used; (iv) the principal actuarial assumptions used in determining the retirement benefit cost and any significant changes in those assumptions (if any); (v)

the actuarial obligations, the fair value of the retirement fund’s net assets, and the difference between the actuarial obligation and the fair value of the retirement fund’s net assets (see sfas no.18, accounting by retirement funds)

(vi) the date of the most recent actuarial valuation, the name of the actuary and the frequency in which valuations are made; and (vii) any other significant matters related to the retirement benefits, including the effects of a program termination and curtailment, that may affect the comparability of the financial statements with those of previous periods. transition 46 if the application of this statement results in a change in accounting policy, the change should be reported prospectively. effective date 47 this statement becomes effective for financial statements covering periods beginning on or after january 1, 1995. early application is highly recommended.

appendix this appendix is for illustration purposes only and does not form part of the statement. the purpose of this appendix is to illustrate the application of the statement of financial standards on accounting for retirement benefit costs. this appendix briefly describes several actuarial assumptions and actuarial valuation methods which are commonly used by actuaries to determine retirement benefit costs. certain aspects of some of the actuarial valuation methods described in this appendix are not consistent with the requirements of the statement, in particular, the individual level premium method and the aggragate method, which do not separately identify past service costs from current service costs. actuarial assumptions and actuarial valuation methods in allocating the retirement benefit cost over the periods in which participants’ services are rendered, it is usually appropriate to determine the actuarial present value of promised retirement benefits based on methods and assumptions that result in current service costs that bear a systematic relationship to participants’ remuneration level. the actuarial present value of promised retirement benefits or, the present value of the expected accumulated retirement benefit payments in the future to existing and retired employees, is attributed to the service already rendered. the retirement benefit cost recognized as an expense may differ significantly depending on the actuarial valuation method used and the actuarial assumptions applied. a.

actuarial assumptions

the uncertainties inherent in projecting trends in inflation rates, salary levels and earnings on investments are taken into consideration in the actuarial valuations by using a set of actuarial assumptions. actuarial assumptions are determined in such a manner that they reflect the long term economic relationships between inflation rates, salary level increases, rates of return on investments and discount rates, even though the absolute of several of the assumptions used may not reflect actual conditions in the short term. these assumptions are projected over the long term, i.e. until the estimated date of the death of the last participants. the following actuarial assumptions are normally used in determining the retirement benefit cost: (a)

the long-term discount rate assumed in determining the actuarial present value of promised retirement benefits with respect to services already rendered as of the valuation date;

(b)

retirement assets are valued at fair value. when fair values are estimated by discounting future cash flows, the assumption of a long-term rate of return is used to reflect the average rate of total investment income (interest, dividends and appreciation in value) expected to be earned during the period until the retirement benefits are paid.

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(c)

when retirement benefits are based on future salaries, or on the final salary level before retirement or on the average salary level of participants (career average programs), salary increases reflect factors such as inflation, promotions and merit awards; and

(d)

automatic increases in retirement benefits, such as cost of living adjustments, are also consideredt. if the employer promises a periodic increase in retirement benefits, then it is assumed that the increase will be fulfilled as promised.

actuarial assumptions used to determine retirement benefit costs are based on long term considerations. however, these actuarial assumptions should be reconsidered from time to time . for example, if the actual increase in salary levels during a period is higher than the assumed amount and it is expected that this trend will continue, the actuary should adjust the salary level assumption used. however, if the salary level differences are temporary in nature and represents normal fluctuations, the actuary does not need to adjust the salary level assumption used.

b.

actuarial valuation methods

actuarial valuation methods generally fall into two broad categories: the accrued benefit valuation method and the projected benefit valuation method. accrued benefit valuation method under these methods: (a)

current service costs is the present value of retirement benefits payable in the future in respect of service rendered in the current period;

(b)

past service cost is the actuarial present value of retirement benefits which should be paid in the future, resulting from the introduction of a plan, program amendments, and completion of the minimum service period as a condition for participation in the retirement benefit program which related to a defined retirement benefit for services rendered by the employees until the occurrence date of one or more of events above;

(c)

the accrued actuarial liability is the present value of retirement benefits payable in the future with respect to service to a certain date.

this method, assuming no inflation or deflation, could result in a current service cost that increases each year as the period to retirement shortens, the decrease in the investment income accumulated from the contributions and the increase in the probability of the employee surviving to retirement. however, for the plan as a whole, the annual current service costs tend to be approximately the same each year since the number and age distribution of active employees remains relatively unchanged. in a salary level related program, inflation adds to the rate of increase in current service cost each year. for a defined benefit plan, this method is often modified by using assumptions of final salary level projections and the values of benefits obtained allocated over the periods in which the services are rendered by employees to determine each year’s current service costs.

projected benefit valuation methods projected benefit valuation methods are actuarial valuation methods which reflect the value of retirement benefits based on services by the employees as of date of the actuarial valuation. these methods allocate retirement benefit costs evenly (either in absolute amounts or as a percentage of salaries) over the employee's service period there are four principal forms of the projected benefit valuation method: (a)

the entry age normal method under this method, each employee is assumed to have participated in the program when first employed or as soon as the employee became eligible. the current service cost is a level annual amount of a fixed percentage of salary which, when invested at the rate of interest assumed in the actuarial valuation, is sufficient to provide the required retirement benefit as promised. past service costs is the the present value of the excess of projected retirement benefits over the amount expected to be provided by future contributions based on the current service cost. the application of this method conceptually requires calculations to be made for each individual employee, however, in practice, and the application of the method is often simplified by assuming one entry date for all employees.

(b)

the individual level premium method this method allocates the cost of each employee's retirement benefit over the period from the date of entry into the program to the date of retirement by using annual level amounts or a fixed percentage of salary. under this method there is no separate calculation for past service costs as in other methods, because the whole cost of the ultimate benefit is spread between the date the employee participates in the program and the retirement date. under this method, annual current service costs is higher than that calculated under the entry age normal method because the annual current service costs includes some component of past service costs.

(c)

the aggregate method this method uses the same basic principles as the individual level premium method but it is applied to the program as a whole rather than to individual employees. the retirement benefit cost is allocated over the estimated average working lives of active employees. the effect of averaging the cost for all employees or groups of employees under this method is that the relatively high annual current service cost in early years of the

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program is less pronounced than under the individual level premium method. under this method, past service costs and experience adjustments are not separately identified but are spread over future periods. (d)

the attained age normal method this method is similar to the aggregate method and the individual level premium method except that under this method the past service cost is calculated and identified using the accrued benefit method. thus, current service costs are determined using the aggregate method but applied only to service which will be rendered in the future.