Should the answer not be A - 192 (86+147-41) - as you would reduce actual return on plan assets to get to economic pension expense rather than add it, as their solution is suggesting? Any thoughts?
wasnt return on assets a negative number?
Yes it was. Service Cost + Interest Cost - Actual Return on Assets = Economic pension expense Since actual return on assets was negative, you add it.
good catch, need to focus on these things more carefully.
The two formula gives different answer. I get different calue with this one: Change in PBO+add back benefit paid- actual return on assets
If you are adding employer’s contribution then don’t deduct actual
solarpower03 Wrote: ------------------------------------------------------- > The two formula gives different answer. > I get different calue with this one: > Change in PBO+add back benefit paid- actual return > on assets The only other way of calculating ECONOMIC pension expense, as opposed to accounting pension expense is: (Current Period Funded Status - Previous Period Funded Status) + Current Period Employer’s Contribution Where is your formula from?
Cubemonkey Wrote: ------------------------------------------------------- > solarpower03 Wrote: > -------------------------------------------------- > ----- > > The two formula gives different answer. > > I get different calue with this one: > > Change in PBO+add back benefit paid- actual > return > > on assets > > > The only other way of calculating ECONOMIC pension > expense, as opposed to accounting pension expense > is: (Current Period Funded Status - Previous > Period Funded Status) + Current Period Employer’s > Contribution > > Where is your formula from? Another method of getting economic expenses. should be in schweser notes I guess
Shouldnt the formula be (current period funded status + previous period funded status) MINUS employer contribution?
no…change in funded status minus employer contrib
These are the 2 ways: 1. Change in funded status - employer contributions 2. Current service cost +Interest Cost - Actual Return on Plan Assets +/- Prior Service Cost (Gain) from Current Period Plan Amendments +/- Current period actuarial loss (gain) =Economic pension expense
bpdulog Wrote: ------------------------------------------------------- > These are the 2 ways: > > 1. Change in funded status - employer > contributions > > 2. Current service cost > +Interest Cost > - Actual Return on Plan Assets > +/- Prior Service Cost (Gain) from Current > Period Plan Amendments > +/- Current period actuarial loss (gain) > =Economic pension expense Cosign
your 2nd formula is nothing but CHANGE IN PBO + BENEFITS PAID - ACTUAL RETURN ON PLAN ASSETS. Change in PBO takes care of the Service cost, Int. Cost, and all that amendment amortization stuff.
Does economic pension expenses include amortization costs? I thought it is only interest + service - actual return, that’s it
kevincwang Wrote: ------------------------------------------------------- > Does economic pension expenses include > amortization costs? > > I thought it is only interest + service - actual > return, that’s it No, regular pension expense includes the amortization items.
cpk123 Wrote: ------------------------------------------------------- > your 2nd formula is nothing but > > CHANGE IN PBO + BENEFITS PAID - ACTUAL RETURN ON > PLAN ASSETS. > > Change in PBO takes care of the Service cost, Int. > Cost, and all that amendment amortization stuff. CPk, do you get the same answer when you apply this formula to this question:?
Change in PBO = 1699-1606 = 93 Add Benefits paid: 148-8=140 (participant benefits contribute 8 so remove that) The participant contributions is a weird part of this question (probably a carry over from previous year’s mocks). - ARPA = -(-41) = + 41 ====================== 274
I’m so confused by this… I was under the impression that Economic Pension Expense removed smoothing effects? I realize there’s more to it now, and CPK’s formula seems correct (verified it with examples on page 111 in CFAI), but can someone clarify about the smoothed items? Thanks.
jdane416 Wrote: ------------------------------------------------------- > I’m so confused by this… I was under the > impression that Economic Pension Expense removed > smoothing effects? > > I realize there’s more to it now, and CPK’s > formula seems correct (verified it with examples > on page 111 in CFAI), but can someone clarify > about the smoothed items? > > Thanks. There’s no smoothing, you’re replacing ERPA with ARPA and not including any amortization effects.
whoa… ERPA and ARPA? What do those stand for?