PBO/Pension Expense Question benefit, following, therefore, measures

prashantsahni

Which of the following measures is least sensitive to changes in pension plan actuarial assumptions?
A - Reported pension expense
B - Funded status
C - Projected benefit obligation
Your answer: A was incorrect. The correct answer was C) Projected benefit obligation (PBO). Reported pension expense is a net (smaller) amount and therefore, is generally quite sensitive to relatively minor changes in actuarial assumptions. Changing an assumption may have a small effect on the projected benefit obligation (PBO) but may have a much larger effect on the funded status (which is a net pension amount).
I had thought since gains/losses due to changes in actuarial assumptions are amortized, the expense would be less sensitive than funded status and PBO?
Overall, I don’t understand the concept that a net amount is more sensitive than if the gross amounts were reported - can someone explain? Thanks.

YAhmed

This is silly question. Not gonna appear, move on. Your explanations are also conflicting.
The reason I hate this question is cuz it doesn’t say *sensitive with regards to what?* Are we supposed to assume the biggest delta changes means it most sensitive? or the biggest numerical change is most sensitive?
Either way, Reported pension expense is what has been reported, it don’t have to necessary change at all if the firm has no money to put in the pension ac.
Projected however will change most cuz of the amortized effect and retrospective effect. Funded status should change the same amount as PBO changes, but it depends on the current funded status.

bkballa

actuarials have to do with assumptions. PBO is the choice that is most affected by “assumptions”