Expected Return and Pensions expected, increase, decrease, only

parott

I see the question does increase/decrease in expected return to do Pension accoutning as far as PBO? Funded Status? and Pension Expense?

As far as I know it only changes pension expense becuase the actuarial gain/loss cancels out the change in PBO... Is this correct?

ayaz_mahmud369

changes in Expected return would affect your "Fair plan assets" so anything that has a component of Fair plan assets would get affected.

So your
Funded status,
Economic Expense
Periodic Cost


would all be affected.

Otabek

It only affects your pension expense. Nothing else.

smuggycfa

pepp,
You trying to bring all of us down with you?...

BelalM

"I see the question does increase/decrease in expected return to do Pension accoutning as far as PBO? Funded Status? and Pension Expense?"

only pension expense = svc cost + interest cost - E(ROA) + amortized stuff

PBO is the liability so the expected return of the asset won't affect it.

funded status is FV plan assets - PBO and the fair value of plan assets are affected by ACTUAL returns, not expected returns.

SFoyil

Ok. i am on record for saying, I hate FRA.

I still think it affects your funded status under (US GAAP).
US GAAP FUNDED STATUS = DBO - Fair value of plan assets.

I still think it affects your Period Cost
Period Cost = Srv cost + past service cost + int cost +- actuairal gain/loss - expected returns


I still think it affects your economic expense (indirectly though)
Economic expense = Company Contributions - Net Funded position at End + Net funded Position at the Begin
Economic expense = Change in DBO - Change in plan assets - Company contributions

tozert, i am already down in the gutter but I am looking at the stars.

economicz

paulblart is on the money. Expected Return is a smoothing mechanism....we use expected return in the reported pension expense in order to smooth our expense & earnings to reduce the volatility.

flyinggirl

^ This. Andrew's got it. Another relevant point is that GAAP doesn't allow income smoothing.

So another question, would this mean the pension expense reported under GAAP will have an adjustment to reflect the actual returns on plan assets? If so the following should be true...

- if returns on plan assets are GREATER than expected, GAAP pens exp < IFRS pens exp
- if returns on plan assets are LESS than expected, GAAP pens exp > IFRS pens exp

any ideas?



Edited 1 time(s). Last edit at Wednesday, June 1, 2011 at 03:03PM by magicskyfairy.

lucasg85

US GAAP reports net funded status, net pension assets/liabilities; IFRS reports gross amount. The impact will be more on mixed ratios (ROE, ROA), rather than economic or reported expenses. Expenses are computed in the same manner under GAAP and IFRS. Right?

redskins44

I think I catch your drift.....but I'm not sure and don't think the material goes that deep