Economic pension expense again 107, example, return, actual, making

cmacedo

Ok, this stuff is making me insane:
Schweser= Service cost+ Interest cost- actual return on plan assets.
Try this formula on page 107 example of the CFA FRA book and let me know what do you think.
Thnaks

yalo

im still not sure when to use actual return vs expected return. I’m hopiong i’ll figure it out when i see the question.

justin88

There are two ways two calculate Economic Pension Expense:
1. Economic Pension expense = service cost + interest cost - actual return.
2. Change in Funded Status - Employer contribution.
As for when to use actual return and expected return, I think you always have to use expected return to calculate Pension Expense on Income Statement else the expense would be too volatile. In contrast, you have to use actual return to calculate PBA. Could anyone confirm this?

badonkus

expected return is how pension expense is actually calculated for the financials. because its not an actual figure - its a smoothed figure and so u need to adjust to ACTUAL for economic pension expense.

sabre

gan1984 Wrote:
——————————————————-
There are two ways two calculate Economic Pension
Expense:

1. Economic Pension expense = service cost +
interest cost - actual return.

2. Change in Funded Status - Employer
contribution.


As for when to use actual return and expected
return, I think you always have to use expected
return to calculate Pension Expense on Income
Statement else the expense would be too volatile.
In contrast, you have to use actual return to
calculate PBA. Could anyone confirm this?
So how do you know which formula to apply? I am sure there will be both answers amongst the choice?

anish

”There are two ways two calculate Economic Pension Expense:
1. Economic Pension expense = service cost + interest cost - actual return.”
- this is wrong: it’s actually
Economic Pension expense = service cost + interest cost + plan amendments - actual return
so for that example on page 107, it would be:
Service Cost 357
+ Interest Cost 333
+ Plan amendments (-59 +755 - 25)
- actual return 241
= 1120
though seriously, why use that method when you can just do
The change in PBO 925
Less the change in Plan Assets 1028
Plus employer contributions 1223
= 1120

Iginla2010

So how do you know which formula to apply? I am
sure there will be both answers amongst the
choice?
both results will be the same.

eoin

Hint: economic P.E. is same as normal P.E., except for making “economic” changes:
1) We don’t believe in expected stuff, only ACTUAL return.
2) Don’t deduct amortizations of large plan changes just to show a small P.E… that’s almost like cheating (but U.S. GAAP allows for it). Deduct the real thing, the ACTUAL cost of those those changes.