Understanding the Pension Scheme: Part 1
Quote:
Originally Posted by
Snoopy
(The underfunded pension plan) is a real underlying risk to shareholders as this debt is over and above the already substantial bank loan liabilities that PGW has. I don't think 'sweeping it under the carpet' by changing the profit presentation format is the right way for shareholders to look at the situation.
I have come to the conclusion that I should reverse the change in result presentation of the pension liabilities when I judge the future prospects of this company. But to do that I need to fully understand how the changes were made.
It was in AR2016 p61 that PGW stated:
"During the period, the group made a commitment to provide certain contributions to the 'Defined Benefit Liability' over a five year period (FY2017, FY2018, FY2019, FY2020 and FY2021). As a result of this commitment, the defined benefit liability now includes the impact of ESCT (Employer Superannuation Contribution Tax) on the committed contributions."
The committed contributions on ESCT were listed as follows:
ESCT on committed contributions - short term |
($2.642m) |
ESCT on committed contributions - long term |
($2.372m) |
If we regard 'short term' as within twelve months, how does this tie up with the actual payments made into the scheme by PGW?
The cashflow statement in AR2017 (being the ensuing 12 months after the above commitment was made) shows the "Lump sum contributions to the defined benefit plan (ECST inclusive) totalled $7.551m. If I assume that this payment was fully taxable at the company tax rate of 28%, then :
$7.551m x 0.28 = ($2.114m)
This falls short of the ($2.642m) I might have expected from AR2016. Does this mean that PGW, at EOFY2016, were going to put more money in this year? But for some reason scaled their contribution back from what was originally envisaged? Or does that tax 28% rate not apply for superannuation payments, because those superannuation payments will ultimately pass to individuals who have a higher marginal tax rate? Working the numbers from the other direction:
(Forecast tax paid)/(Actual tax Payment) = ($2.642m)/($7.551m) = 35%
That seems quite a high tax rate for superannuitants. So perhaps my theory of a higher tax rate applying to these funds is not right?
Returning to the AR2016 results, the differences noted in my post 4135 under 'non-operating items' and the apparently related 'income tax adjustment' would indicate that the defined benefit Scheme(s) over FY2016 made a NPAT of $5.835m and produced an associated income tax liability of $1.634m.
I note that: $1.634m/$5.835m = 28%, which is the company tax rate.
Yet the fair value of plan assets actually went down over FY2016, from $57.498m to $ $52.702m (note 19, AR2016). How do I reconcile those two positions?
It seems that those in the scheme who are not yet retired, despite it being closed to new participants, are still able to add to their scheme positions. Likewise those that are already retired are receiving payouts from the scheme.
SNOOPY
Understanding the Pension Scheme: Part 2
Quote:
Originally Posted by
Snoopy
Returning to the AR2016 results, the differences noted in my post 4135 under 'non-operating items' and the apparently related 'income tax adjustment' would indicate that the defined benefit Scheme(s) over FY2016 made a NPAT of $5.835m and produced an associated income tax liability of $1.634m.
I note that: $1.634m/$5.835m = 28%, which is the company tax rate.
Yet the fair value of plan assets actually went down over FY2016, from $57.498m to $ $52.702m (note 19, AR2016). How do I reconcile those two positions?
It seems that those in the scheme who are not yet retired, despite it being closed to new participants, are still able to add to their scheme positions. Likewise those that are already retired are receiving payouts from the scheme.
p63 in AR2016 provides more details on the profit and loss factors that moved the pension scheme balance about over FY2016. Using this I will try to reconcile what happened.
Opening Fair value of Plan Assets |
$57.498m |
less Benefits paid by the Plan |
($3.482m) |
add PGW Top Up Contribution |
$1.204m |
add Member Contributions |
$1.254m |
add Current Service Costs and Interest |
$2.063m |
(This is odd because I would expect 'service costs' to be a negative value. Could it be they have been offset by 'interest earned? (1)) |
less Expected Return on Plan Assets |
($5.835m) |
(A very strange piece of jargon IMV. Why would the expected investment return be negative? Was the actual return negative?) (2) |
equals Closing Fair value of Plan Assets |
$52.702m |
(1) The line below shows 'Current Service Costs' to be $1.083m and 'Interest' of $0.529m adding to $1.612m. This is not in agreement with 'Current Service Costs and Interest' being $2.063m. However both of these are listed as positive 'expenses' which should add negatively to the plan asset total as I might have expected.
(2) This negative return appears to be unique to FY2016. The 'Expected return on plan assets' both over FY2015 and FY2017 are both positive as I might expect. What was it that 'apparently' caused this huge loss in FY2016, when investment markets were so favourable?
The total movement in plan assets was:
$57.498m - $52.702m = -$4.796m
Yet the figures from the profit and loss statement that I derived were a profit of $5.835m together an associated income tax liability of $1.634m, which doesn't tie up. I must say that I am finding this pension scheme representation in the books all rather baffling....
SNOOPY
A Smart Tiger learns from Past Experiences, especially painful ones.
Quote:
Originally Posted by
Snoopy
...
add Current Service Costs and Interest |
$2.063m |
(This is odd because I would expect 'service costs' to be a negative value. Could it be they have been offset by 'interest earned? (1)) |
less Expected Return on Plan Assets |
($5.835m) |
(A very strange piece of jargon IMV. Why would the expected investment return be negative? Was the actual return negative?) (2) |
...
...
(1) The line below shows 'Current Service Costs' to be $1.083m and 'Interest' of $0.529m adding to $1.612m. This is not in agreement with 'Current Service Costs and Interest' being $2.063m. However both of these are listed as positive 'expenses' which should add negatively to the plan asset total as I might have expected.
(2) This negative return appears to be unique to FY2016. The 'Expected return on plan assets' both over FY2015 and FY2017 are both positive as I might expect. What was it that 'apparently' caused this huge loss in FY2016, when investment markets were so favourable?...
Quote:
Originally Posted by
winner69
...Like that ($5.835m) is the difference between expected returns (the long term return assumption) and actual returns. Now that's got you confused eh...
I am just going to keep quiet, occasionally look in on how this is 'progressing' and possibly allow myself a few smug moments.
Best Wishes
Paper Tiger