pensions.....expected return on plan assets vs. actual return on plan assets

[pass hungry]

Where is each one used, and why wouldn’t you use the actual return on plan assets when you have them?
Thanks.

 

[Xander086]

Because actual return are too volatile, accountants don’t like to deal with uncertainty so they “smoonth” and replace it with expected return to derive accounting pension expense.

 

[pass hungry]

so are actual returns ever considered in PBOs (beginning or ending) or pension costs, etc.?

 

[Xander086]

1. Actual return would not appear in Income Statement, expected return would,
Accounting pension expense = Service cost + interest cost - expected return + plan amendments
2. The difference between actual and expected return is recorded in the OCI under Actuarial G/L.
3. Actual return won’t impact PBO but would impact Plan Asset
Ending PBO = Beginning PBO + Service cost + Interest cost + Prior service cost +/- Actuarial G/L - Benefits paid
Ending Plan assets = Beginning plan assets + Contributions + Actual return - Benefits paid
4. Actual return won’t impact accounting pension expense, but as an anaylyst you have to know how derive economic pension expense which is total periodic pension costs (unless someone proves me wrong)
Total periodic pensions costs = Economic pension expense
Total periodic pensions costs= contributions - change in funded status
Economic pension expense = Service cost + interest cost - Actual return + plan amendments

 

[thegeneral101]

correct me if I’m wrong (going from memory) but:
“expected return” is used in the income statement net pension expense.
“actual return” is used in the pension plan asset calculation.
The “remeasurment” portion (actual versus expected) is amortized in OCI.
My Question:
Isn’t GAAP different here from IFRS? I think GAAP can put taht remeasurement in OCI or P&L?

 

[Xander086]

On BS side, I think they agreed with each other (Thank God!).
On IS side, they differ:
IFRS:
1. Expense prior service cost immediately
2. Actuarial G/L in OCI (well I wouldnt call it amortise…)
US GAAP:
1. Pior service cost amortised over length of service
2. Actual G/L in OCI using Corridor method: amortised in IS, unamortised in OCI