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Question

What factors that influence the future pension obligation of an employer under a defined benefit pension plan.

Answer 1

Be guided by IAS 19 Employee Benefits. The objective of IAS 19 (Revised 1998) is to prescribe the accounting and disclosure for employee benefits (that is, all forms of consideration given by an enterprise in exchange for service rendered by employees). The principle underlying all of the detailed requirements of the Standard is that the cost of providing employee benefits should be recognised in the period in which the benefit is earned by the employee, rather than when it is paid or payable.

Defined Benefit Plans

For defined benefit plans, the amount recognised in the balance sheet should be the present value of the defined benefit obligation (that is, the present value of expected future payments required to settle the obligation resulting from employee service in the current and prior periods), as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and reduced by the fair value of plan assets at the balance sheet date. [IAS 19.54]

The topic is too big to discuss here. Click on the link for the summary of IAS 19. If you're from US, then be guided by FASB Statement No. 158 Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans