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÷ 1.1^4 = $68.3). You can see how interest cost depends on the discount rate assumption.
Now, let's continue with PepsiCo's footnote above. Plan amendments refer to changes to the pension plan, and they could have a positive or negative impact on cost. "Experience loss" is more commonly labeled "actuarial loss/gain," and it too can be positive or negative. It refers to additional costs created because of the actuarial estimates changes made during the year. For example, we don't know exactly the cause in PepsiCo's case, but perhaps it increased its estimate of the average rate of future salary increases or the average age of retirement. Either of these changes would increase the PBO and the additional cost would show up as an "actuarial loss."
We see that PepsiCo's liability at the end of the year 2003 was $5,214. That is the PBO. We also see a lesser amount "for service to date." That is the VBO and we can ignore it.
The fair value of the plan assets ($4,245) subtracted by the PBO ($5,214) results in the funded status at the end of 2003 of -$969 million. The bottom line: PespiCo's pension plan at that time was under-funded by almost one billion dollars.
Pension Plans and the Balance Sheet
Now remember we said that pension plans are off-balance-sheet financing, and in PepsiCo's case, the $4.245 billion in assets and $5.214 billion in liabilities are not recognized on the balance sheet. Therefore, typical debt ratios like long-term debt to equity probably do not count the pension liability of $5+ billion. But it's even worse than that. You might think the net "deficit" of -$969 million would be carried as a liability, but it is not. Again, from the footnotes:
Due to the smoothing rules of pension plan accounting, PepsiCo carried $1,288 in pension plan assets on the balance sheet, at the end of 2003. You can see how the
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