pension accounting

J

jsshuai158

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hi everyone,
i’m new to this forum and wish to get help related to the subject above.
calculating economic pension expense:
if the only info given are:
1. current cost $50
2. interest cost $20
3. amortization of actuarial loss $10
4. actual return of plan assets $10
what is the economic pension expense?
this is part of a question from schwser notes, and the numbers may be different, but the ask is the same. i’m really confused about this topic. the books says it is current cost+interest cost+plan amendments - actual returns of plan assets.
but the answer is 1+2+3-4… why would 3 be there?
thank you,
j
 
it is a loss suffered in the past. which is being periodically amortized (paid out) now.
If it had been a amortization of actuarial gain (it has already been paid before, so not needs to be removed).
This is, to clarify, a loss or a gain due to change in the Actuarial assumptions, on the plan.
 
CPK - amortization is smoothing - not included in pension expense. JSS - could you pls give page number info? Don’t think I saw number 3 in Schweser Notes.
 
CML,
i’m reading the 2011 version of schewser level 2 notes, on page 227, answer 10.A , if you look at the middle column, where it list the calculation for “Economic pension expense”. Amortization is included in the economic pension expense calcuations, which baffles me a hell lot!
 
yes, amortization is smoothing.
it is something that you are paying out now as well. so it is an expense. This is something that was not accounted for in the past, you are paying it now, but slowly.
 
JS,
Found it - it was not in that chapter but under self-test. They refer to it as unamortized (unrecognized) pension expense. Indeed unamortized pension expense increases PBO and hence does go into calculation for ending PBO. I think the reference here has to be plan amendments or changes in actuarial assumptions that occured during the year.
Regardless, amortization smoothing is not part of pension expense.
 
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