Actual return on plan assets

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Skies

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DB Plan, CFI book Page 114
Please check if the following calculation is correct:
Actual return on plan assets =
change in fair value of plan assets (i.e. end fair value - beginning)
- all contributions
+ benefits paid
The above is derived from: beginning fair value + contributions - benefits paid = end fair value
Are currency translation effects and plan amendments impact on plan assets included in the calculation of actual return on plan assets?
 
change in fair value needs to include the actual returns on the planned assets themselves.
I very much doubt they will throw in currency translation effects on this ie mix up the topics, but would be a pearl of a question if they did….
 
Thanks for the answer…I figured it out.
There’s also another way of calculating actual return on plan assets, which is expected return on plan assets + actuarial gains…
 
Skies can u explain y we add up exp.return on assets and actuarial gains to arrive at actual return on assets? My question is in reference to page 119 cfa book: there it shows the calculation of actual return on assets summing all the items that increase or decrease fair value of assets.
 
Skies,
That is not correct. There is no such relationship as you describe between actual return and actuarial gains. Actual return is really just the change in value of the assets due to market movement.
Expected return is just an assumed long term rate of return for the plan.
 
CFAI Book Page 117
“recall that actuarial gains and losses result from two sources: changes in the actuarial assumptions used in determining the benefit obligation, and differences between the expected and actual return on pension plan assets”
 
Chi Paul Wrote:
——————————————————-
> Skies,
>
> That is not correct. There is no such
> relationship as you describe between actual return
> and actuarial gains. Actual return is really just
> the change in value of the assets due to market
> movement.
>
> Expected return is just an assumed long term rate
> of return for the plan.
this is right, the difference between expected and actual return goes to comprehensive income
 
the difference b/w expected and actual rate of return is considered actuarial g/l and the amounts of actuarial g/l that are not immediately expensed goes to other comprehensive income.
and folks can anyone shed light on my question: how to calculate actual return?
In one of the answer at the back of the chapter in cfa book it says actual return = expected return + actuarial gain as skies also said. i am refering to ques. no.11 page 135.
thanks
 
It is not my recollection that any differences (and you will have them every year!) between the actual and assumed rate of return is an actuarial gain or loss. Actuarial gains and losses are typically items such as change in assumed life expectancy, changes in assumed salary increases, etc. It just does not seem consistent with the spirit of what an actuarial gain/loss really is, though I could well be wrong and based on Skies quote from the text, it seems I am.
That said, I still do not think it is correct that you can count on taking the expected return, back out your actuarial gains/losses to arrive at the actual return, because what if there are actuarial gains that result from a change in life expectancy assumption? That has absolutely nothing to do with your actual return, and you are going to drop that into the equation?
So how to get to actual return? This is no different than coming up with a return on any other portfolio. Fundamentally, you take the difference between your ending and beginning market value, strip out the cash flows (contributions and benefit payments) and the difference is your actual return. Example:
Begin MV $10
Contribution +5
benefit pmt -3
Ending MV $15
In the above your actual return would be $3.
 
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