pension adjustment difference, net, economic

soverby

just to clarify-

if economic pension expense > employer contribution, the difference net of taxes is reclassified from CFO to CFF? so CFO is reduced and CFF increases?

SpyAli

Dreary - I agree with all your calcs. However, you need to multiply the adjustments above by (1-T) so you can get the after-tax effect. Why after tax effect?

Because in a scenario, for example, where contribution > EPE, you are paying down principal. Interest expense is tax deductible.

kickthatcfa

...my head is still spinning from these adjustments...I just have to commit to memory.

profil

well schweser does read net of taxes .. care to explain dreary ? please .. thanks

ap0258

theCFAway Wrote:
-------------------------------------------------------
> just to clarify-
>
> if economic pension expense > employer
> contribution, the difference net of taxes is
> reclassified from CFO to CFF? so CFO is reduced
> and CFF increases?


Correct but drop "net of taxes" in the above.

ryanlb

thanks spanish. another adjustment is to income. only service cost is added to operating income. interest cost is added to interest expense, and actual return on plan assets are added to other non operating income. am i missing anything else?

zephyranalyst

theCFAway Wrote:
-------------------------------------------------------
> thanks spanish. another adjustment is to income.
> only service cost is added to operating income.
> interest cost is added to interest expense, and
> actual return on plan assets are added to other
> non operating income. am i missing anything else?

adjust ment to cashflow with indirect method to reflect true economic position:
adjustments to reported cashflow: add back reported pension expense less contribution from employer

adjustment to reported NI: (add back reported pension expense less economic pension expense) X (1 - tax rate)

jarobi04

Yes. If EPE > contributions, its as if the plan is borrowing money, which would increase CFF. If EPE< contributions, its as if debt is being paid down, which reduces CFF.