Corridor Rule


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.

BREAKING DOWN '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.

  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. Adjusted Gross Income - AGI

    A measure of income calculated from your gross income and used ...
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