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 Benefit Obligation - PBO

    An accounting term used to describe the amount of money a company ...
  3. Funded Status

    The status of pension plan that has accumulated assets that have ...
  4. Pension Fund

    A fund established by an employer to facilitate and organize ...
  5. Pension Shortfall

    A situation in which a company offering employees a defined benefit ...
  6. Earned Premium

    The amount of total premiums collected by an insurance company ...
Related Articles
  1. Retirement

    An Overview Of The Pension Benefit Guaranty Corporation (PBGC)

    Find out how this "retirement lifeguard" can save drowning plans, and why it's unlikely to be a long-term solution to the pension problem.
  2. Retirement

    Is Your Defined-Benefit Pension Plan Safe?

    Your plan may not last in a rocky market. Find out whether your savings will be affected.
  3. Retirement

    The Investing Risk Of Underfunded Pension Plans

    Determine the risk to a company's EPS and financial condition resulting from an underfunded pension plan.
  4. Retirement

    Pension Protection Act Of 2006 Becomes Law

    Learn how the passed bill can help you save more for retirement.
  5. Budgeting

    The Demise Of The Defined-Benefit Plan

    Experts are making bleak predictions for your post-work years. Be prepared and plan for your future.
  6. Retirement

    Lump Sum Versus Regular Pension Payments

    If you're about to retire, you may be facing this dilemma soon. Find out what your options are.
  7. Investing

    How To Evaluate Pension Risk By Analyzing Annual Costs

    Learn how to assess whether a company's pension plan is posing more risks than what the footnotes indicate.
  8. Fundamental Analysis

    What's a Prospectus?

    The Security and Exchange Commission (SEC) requires that any company raising money from potential investors through the sale of securities must file a prospectus with the SEC and then provide ...
  9. Fundamental Analysis

    Cash Flow From Operating Activities

    Cash flow from operating activities is a section of the Statement of Cash Flows that is included in a company’s financial statements after the balance sheet and income statements.
  10. Fundamental Analysis

    What's Net Debt?

    Net debt is one of the many metrics used to measure a company’s ability to pay its debts. There are other metrics such as net liquidity ratio, cash conversion cycle and the debt to equity ratio, ...

You May Also Like

Hot Definitions
  1. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  2. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  3. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  4. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  5. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
  6. Bank Guarantee

    A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor ...
Trading Center