1. Explain the above journal entry, including the cash flow implications for financial statement analysis and valuation.
2. What would Boeing’s pension and OPEB expense have been in 2008 if it did not use smoothing for its investment gains and losses and for revised actuarial assumptions? Would it be less or more confusing if Boeing did not use smoothing for its pension expense? Explain.
3. How subjective are the Boeing’s pension assumptions (Exhibit 1)? How subjective are Boeing’s retiree health-care assumptions (Exhibit 1)? Are Boeing’s pension assumptions more or less subjective than its retiree health- care assumptions?
4. Explain the “Market-Related Value of Assets” paragraph in Exhibit 1.
Many large U. S. industrial firms and most U.S. governmental units (local, state, and federal) provide defined benefit pension plans to their employees. Upon retirement, an employee receives a formula-based monthly retirement benefit (payment) until death. The monthly benefit is typically a function of years of service, final salary over the last few years of employment, retirement age, and whether the employee elects a lower benefit for the life of both the employee and spouse. The pension plan (plan) is the set of rules that govern eligibility, benefits, and other details. Nongovernmental pension plans must meet standards established by the Employee Retirement Income Security Act of 1974 (ERISA) and are insured by the Pension Benefit Guarantee Corporation, a federal corporation created by ERISA. The pension fund (fund) is a legal entity separate from the employer (sponsor); the fund holds the plan assets and pays retirees their benefits. A fund has trustees who are subject to fiduciary rules. In nearly all cases, pension trustees hire third-party investment advisers to invest pension assets and hire pension consultants to help select and monitor their investment advisers.