This excerpt taken from the BAK 20-F filed Jun 23, 2006.
(d) Pension benefits
Pension benefit obligations for Brazilian GAAP purposes should be accounted for following CVM Instruction 371/2000, which requires the mandatory application of Brazilian Accounting Standard IBRACON NPC 26. Under CVM Instruction 371/2000, disclosure of pension and other post-retirement obligations is required as from December 31, 2001 while recognition of the related obligations is required as from years ended December 31 2002. As permitted by NPC 26 the initial transitional obligation, which is the difference between
COPESULCompanhia Petroquímica do Sul
Notes to the Consolidated Financial Statements(Continued)
at December 31, 2005 and 2004
All amounts in millions of reais, unless otherwise indicated
plan assets and plan projected benefit obligation at the date of initial recognition, may be recognized by the Company over a 60 month period as from the year ended December 31, 2002. After initial application of the standard, actuarial gains and losses are deferred and recognized in income over the estimated remaining service period of the employees to the extent that those actuarial gains and losses exceed 10% of the higher of the plan assets and the projected benefit obligation.
Under US GAAP, pension benefits should be recorded in accordance with SFAS No. 87,Employers Accounting for Pensions. The Company is a sponsor of PETROSFundação Petrobras de Seguridade Social which administers a defined benefit plan for the employees of the Company. The defined benefit pension plan sponsored by the Company was considered a multi-employer plan prior to August 2002 with each plan sponsor, including the Company, jointly responsible for the plan benefits relating to all sponsors. Through August 2002, contributions to the defined pension plan were recognized as expense when due. Effective August 2002, the liabilities and assets of PETROS were legally dissagregated for each sponsor and the Company began to account for the plan under the accounting requirements for single-employer pension plans, based on actuarial assumptions. The prior service cost as of August 2002 is being recognized as expense over the estimated remaining service period of the employees. As from August 2002, actuarial gains and losses are deferred and recognized in income over the estimated remaining service period of the employees to the extent that those actuarial gains and losses exceed 10% of the higher of the plan assets and the projected benefit obligation. Under US GAAP if the accumulated benefit obligation exceeds the fair value of plan assets, a liability is required to be recorded for at least the difference between those amounts. If the liability already recorded in the balance sheet is less than such amount, an additional minimum liability is required to be recognized against an equal amount recognized as an intangible asset to the limit of the unrecognized prior service cost.
Although plan assets and projected benefit obligations are the same under Brazilian GAAP and US GAAP, differences arise in the amounts recorded in the financial statements as result of: (i) the fact that the initial transitional obligation is recognized under Brazilian GAAP over a 60 month period while the prior service cost is recognized for US GAAP over the estimated remaining service period of the employees, and (ii) the recognition of a minimum liability under US GAAP, which is not required under Brazilian GAAP.
The measurement date used to determine pension benefits is December 31 for US GAAP both in 2005 and 2004, while for purposes of Brazilian GAAP the Company has used November 30 for 2005 and 2004.
The funded status of the defined benefit pension plan as at December 31, 2005 and 2004 and the additional disclosures required by SFAS No. 132, Employers Disclosures About Pensions and Other Post-Retirement Benefits, as amended, are as follows: