When calculating periodic pension expense, should I use the expected plan return % or the actual plan return %?
It is common to use the expected return % to calculate net periodic pension expense as it keeps earnings smooth and earnings volatility low. However, for calculating the ending plan asset balance, its common to use the actual return on plan assets.
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How to calculate the fair value of the pension plan asset?
The fair value of plan assets represents the cumulative investments (plan assets) that are being held for retiree’s (employees) and will be paid out once the pension allows for it. The formula below illustrates how to calculate the ending fair value of plan assets, which would be recorded on the asset section of the balance...
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How to calculate the net gain or loss on plan assets throughout the year?
The first step is to calculate the expected return on plan assets. Next, you compare the expected return to the actual return, and that results in a net gain or loss, which is recorded to other comprehensive income. For example, if the company had an actual return on plan assets of $100,000 as compared to...
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What items increase the pension benefit obligation and what items decrease the pension benefit obligation?
There are five main items that either increase the PBO (increase the liability) or decrease the PBO (decrease the liability. The items that will increase the PBO include interest cost, service cost, and actuarial losses. The items that decrease the PBO (reduce the liability) include actuarial gains and benefits paid to retirees.
How to calculate the fair value of the pension plan asset?
The fair value of plan assets represents the cumulative investments (plan assets) that are being held for retiree’s (employees) and will be paid out once the pension allows for it. The formula below illustrates how to calculate the ending fair value of plan assets, which would be recorded on the asset section of the balance...
How to calculate the net gain or loss on plan assets throughout the year?
The first step is to calculate the expected return on plan assets. Next, you compare the expected return to the actual return, and that results in a net gain or loss, which is recorded to other comprehensive income. For example, if the company had an actual return on plan assets of $100,000 as compared to...
What items increase the pension benefit obligation and what items decrease the pension benefit obligation?
There are five main items that either increase the PBO (increase the liability) or decrease the PBO (decrease the liability. The items that will increase the PBO include interest cost, service cost, and actuarial losses. The items that decrease the PBO (reduce the liability) include actuarial gains and benefits paid to retirees.
