Plan curtailment definition

What is Plan Curtailment?

A plan curtailment occurs when there is a major decline in the number of staff covered by either a post-employment benefits plan or a defined benefit plan. Several events can trigger a plan curtailment, including shutting down a production facility or subsidiary, or laying off a large number of employees. The result of a plan curtailment is that many employees are no longer eligible for the plan.

Accounting for a Plan Curtailment

If there is a curtailment of a benefit plan, the associated amount of prior service cost already recorded in accumulated other comprehensive income that is related to future years of service should be recognized in earnings as a loss. Also, the projected benefit obligation may be increased or decreased by a curtailment. This is a curtailment gain in the amount by which it exceeds any loss included in accumulated other comprehensive income. This is a curtailment loss in the amount by which it exceeds any net gain included in accumulated other comprehensive income. A curtailment loss should be recognized in earnings when the amount can be reasonably estimated and the curtailment is probable. A curtailment gain should be recognized in earnings when the plan is formally suspended or the impacted employees are terminated.

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