Pensions adjustments to Balance Sheet

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Hi everyone,
Schweser pg 262 in book 2 says “The appropriate balance sheet adjustment is to replace the net pension asset or liability with the actual economic status of the plan (the funded status).”
However, I thought that funded status (fair value of plan assets - PBO) was synonymous with net pension asset/liability (at least under GAAP, since there is no reconciliation for unrealized gains, losses, etc.).
Am I missing something? The problem they have relating to this on page 276 does kind of make sense though, as they are just replacing the net pension asset for its fair value (increasing it by 2,000) so it’s more of a question I have on the conflicting info from SS 6.
Thanks.
 
it’s the same thing. funded status is one of 2 net positions: net pension asset or net pension liability.
 
I think what they are trying to say is that the balance sheet item is a net amount and we want to adjust that to make items for both assets and liabilities.
Say if your net liability was 1 000 (what is on the BS for US GAAP),
Funded status - PBO = -1000 <—- under liabilities
You want to make the adjustment to gross values.
Say your PBO was 3000
FV of plan assets would be -1000+3000 = 2000
You would want to go from net liability —> gross liability and gross asset
You would add 2000 to your liabilities (to make it 3000 PBO) and 2000 to your assets (FV of assets).
If you have a net liability (PBO > FV of plan assets) — > always add the FV of assets to both assets and liabilities to go from net liability to gross amounts
If you have a net asset (PBO < FV of plan assets) — > always add the PBO to both assets and liabilities to go from net assets to gross amounts
 
honeslty not really but i think u are overcomplicating it.
i dont see how bmwhype can be right because if net pension asset/liabilty are the same thing as funded stats then there is no reason to make an adjustment like is done on page 276.
yet, in ss#6, page 168, it says that no reconciliation is made so theyre the same. it also says “Firms following US GAAP report the funded status on the balance sheet in accordance with a relatively new stands, SFAS No 158”. This is also conflicting info, since according to the problem on page 276 the funded status is not on the B/S.
 
I believe it’s just referring to removing the smoothing factors of the “Pension Expense”, thus creating the “Adjust Pension Expense”, aka Economic Pension Expense.
SFAS 158 I think?
 
Sorry, should have quoted. My “it’s” is referring to the following statement from Schweser you posted:
———-
Schweser pg 262 in book 2 says “The appropriate balance sheet adjustment is to replace the net pension asset or liability with the actual economic status of the plan (the funded status).”
———-
 
well it is removing the smoothing factors of the pension asset or liability, since it is replacing the pension asset or liability with the actual economic value of the pension plan (i.e. the funded status). this is how i see it–does anyone agree?
also, maybe im missing somthing here, but how is pension asset calculatedd?
 
i was just about to ask. Schweser doesn’t make sense because what it’s asking you to replace it with (funded status) is exactly what they said was there initially (net asset or liability).
not sure how adding back in A and liabilities will change equity either, as they suggest further down.
 
by economic status, I think they mean if there is a difference between what is reported and what the market value of net plan assets and net liabilities are.
look at question numbers 7 through 11 on page 276…..
however, this does raise the question, why would there be a difference between balance sheet value of plan assets and market value of these assets if we adjust them every year for the change in fair value of plan assets…..
 
I really do think it’s a net liability vs gross asset and liability thing
 
TheAliMan Wrote:
——————————————————-
> I really do think it’s a net liability vs gross
> asset and liability thing
AliMan I am not doubting you….but I am just looking at the schweser question I referenced above and they do not treat it that way.
 
Sorry, I actually opened up my page to that part.
Pension expenses aren’t allowed to be deducted in tax statements, that explains the decrease in DTL (or increase in DTA).
At the bottom it says that SFAS No. 158 (the new standards) were implemented in the most recent balance sheet, however this provision wasn’t adopted in prior balance sheets. Therefore make pension adjustments to prior balance sheets.
 
have we been able to settle why/how pension asset/liability is diff from funded status?
i just cant completely knock off ss#6 saying that funded status goes on b/s unreconciliated from net pension/liability but the problem on pg 276 saying theres a diff between the two.
 
from what i understand…
Fair Value - PBO = funded status (New GAAP)
Funded status - unrecog items = net ass/liabitlities (IFRS, Old GAAP)
so how is funded status = net asset/liabilities? maybe under IFRS..?????
Econ Pension Expense (adj pension expense)
= PBO - benefits paid - actual (r)
= change yr0,1 funded status - contributions
 
actually you may be onto something.
is it possible that the problems where you have to adjust the B/S (like on page 276) relate to the old GAAP, where funded status and net pension liability are different because net pension liability included reconciliation of unrealized items, yet SS#6 does it the way it’s down in the new GAAP rules, where there is no reconciliation and thus theyre equal?
 
TheAliMan Wrote:
——————————————————-
> Sorry, I actually opened up my page to that part.
>
> Pension expenses aren’t allowed to be deducted in
> tax statements, that explains the decrease in DTL
> (or increase in DTA).
>
> At the bottom it says that SFAS No. 158 (the new
> standards) were implemented in the most recent
> balance sheet, however this provision wasn’t
> adopted in prior balance sheets. Therefore make
> pension adjustments to prior balance sheets.
 
I’ve read this pension thingy twice in the last 2 days and i am so confused i can’t tell.
The only thing I understand so far is this:
Balance sheet only reports net (ie. plan assets - PBO), if its negative its underfunded and a liability, if its positive then its overfunded and an asset and this is also called the funded status. So I have to agree, I don’t see any reason for any adjustment because if we follow this funded status, then we are always keeping it current.
I am really confused. Someone guide pls.
 
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