Pension Question

[OD864]

1. Expected Return does not Affect PBO. However if Expected return is part of acturial g/l, and according to the PBO equation (service cost+interest cost+acturial g/l), shouldn’t it ultimately affect PBO?
2. Contribition and Change in Net Funding Status=Total Pension Cost. However, wouldn’t contribution be double counted because net funding status=change in net asset and pbo. Net asset=Beg net asset+contribution+actual return-benefits paid. Contribution is counted in net funding status calculation already?

 

[darshanP]

1. Expected Return does not Affect PBO. However if Expected return is part of acturial g/l, and according to the PBO equation (service cost+interest cost+acturial g/l), shouldn’t it ultimately affect PBO?
As far as I know, expected return has no effect on Actuarial G/L. Exp return on plan asset has effect on Pension Exp only. I think you’re confused with differences between Actual Ret and Exp return that has impacted on Actuarial G/L. (Remember differences between Actual and Exp Ret is termed as Remeasurement)
2. Contribition and Change in Net Funding Status=Total Pension Cost. However, wouldn’t contribution be double counted because net funding status=change in net asset and pbo. Net asset=Beg net asset+contribution+actual return-benefits paid. Contribution is counted in net funding status calculation already?
I guess its in you question. Contribution included in funded status is Beg year while what have been asked, is contribution during the year that has affected total pension Cost…Hope I’m right
And hope It helps

 

[S2000magician]

OD864 wrote:1. Expected Return does not Affect PBO. However if Expected return is part of acturial g/l, and according to the PBO equation (service cost+interest cost+acturial g/l), shouldn’t it ultimately affect PBO?

No.
The difference between the actual return and the expected return goes to OCI. Under IFRS it just sits there, while under US GAAP it may get amortized and included in pension expense. It never goes to PBO.

OD864 wrote:2. Contribition and Change in Net Funding Status=Total Pension Cost. However, wouldn’t contribution be double counted because net funding status=change in net asset and pbo. Net asset=Beg net asset+contribution+actual return-benefits paid. Contribution is counted in net funding status calculation already?

Here, net funded status is ΔPBO − Δassets, so the contribution cancels out.

 

[Rasec]

Beg PBO
+Past Service Cost (IFRS is expensed asap; US GaaP: amortized using the corridor method)
+Current Service Cost
+Interest Cost
+Acturial Loss
-Acturial gain
+contributions from Employee
-Benefits Paid
=END PBO
The expect return is an assumption. the actual return is the real deal. The difference is accounted for IN OCI.
So you see… doesn’t goes thru PBO