Pension Approaches
Non-capitalization approach to pensions:
- Prior to FASB #87 the noncapitalization approach was common (also known as off-B/S financing).
- Balance sheet
- Report asset/liability only if funding was not equal to expense.
- Employee labor caused pension cost which created an obligation to fund which triggered cash payments.
- Benefits paid to retirees did not reduce asset/liability (no entry was made)