Corridor Rule

AAA

DEFINITION of 'Corridor Rule'

In financial accounting, the corridor rule is a materiality rule that requires disclosure of a pension actuarial gain or loss, if the gain or loss exceeds 10% of the greater of the Pension Benefit Obligation (PBO) or the fair value of plan assets. If this is the case, then the corridor rule allows this actuarial gain or loss to be amortized gradually over time into the income statement.

INVESTOPEDIA EXPLAINS 'Corridor Rule'

Overall, the corridor rule can be seen as having a smoothing effect with respect to reporting pension gains and losses. The corridor rule was established under FASB Statement 87 in December, 1985. According to this statement, the prior accounting standards for pension reporting were too weak, and resulted in inconsistent reporting methods between companies, and sometimes even different methods from one period to the next.

RELATED TERMS
  1. Accumulated Benefit Obligation

    An approximate measure of a company's pension plan liability. ...
  2. Pension Shortfall

    A situation in which a company offering employees a defined benefit ...
  3. Pension Fund

    A fund established by an employer to facilitate and organize ...
  4. Funded Status

    The status of pension plan that has accumulated assets that have ...
  5. Pension Benefit Obligation - PBO

    An accounting term used to describe the amount of money a company ...
  6. Book Value Reduction

    Reducing the value at which an asset is carried on the books ...
Related Articles
  1. An Overview Of The Pension Benefit Guaranty ...
    Retirement

    An Overview Of The Pension Benefit Guaranty ...

  2. Is Your Defined-Benefit Pension Plan ...
    Retirement

    Is Your Defined-Benefit Pension Plan ...

  3. The Investing Risk Of Underfunded Pension ...
    Retirement

    The Investing Risk Of Underfunded Pension ...

  4. How To Evaluate Pension Risk By Analyzing ...
    Investing

    How To Evaluate Pension Risk By Analyzing ...

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center