Pension expenses vs Pension costs

CFA Level II FRA
#1

Hello Forum,

I still have problems understanding the concept. Could someone please tell me if I am right or wrong? Help is much appreciated

For pension costs there are 2 possible ways to calculate them. One where we add/subtract each item and another where we look at the ending value minus the beginning value.

(1) current service costs interest costs (+) past service costs (+) actuarial losses (+) actuarial gains (-) return on plan assets (-)

(2) ending net pension liability beginning net pension liability (-) employer contribution (+)

For pension expenses the calculation looks at which item goes through P&L and which through OCI: I have the following calculations from another thread (https://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91338543)

IFRS: current service costs interest costs (+) past service costs (+)

US: current service costs interest costs (+) past service costs (+) actuarial losses (+) actuarial gains (-) return on plan assets (-)

Any clarification is much appreciated.

Many thanks and kind regards

#2

Expense:

IFRS: current service costs interest costs (+) past service costs (+) expected return using discount rate (-)

USGAAP - general rule: current service costs interest costs (+) _expected return using expected return rate (-)_amortized costs due to corridor rule (+) past service costs (+) actuarial losses (+) actuarial gains (-) return on plan assets (-)

USGAAP - alternative if company chooses to use (rarely): current service costs interest costs (+) past service costs (+) actuarial losses (+) actuarial gains (-) return on plan assets (-)

#3

Thanks for your reply,

could you also please verify if I am correct with the “pension costs” above?

Many thanks and kind regards

#4

Yes the costs look right.

#5

@125mph

Many thanks for your help - much appreciated!

Just one quick follow-up question.

Am I correct in saying that all items mentioned in the expense section (for IFRS and US GAAP) are expensed through the P&L, whereas the cost items are expensed through P&L as well as through OCI?

Many thanks again!

#6

Hello,

it’s me again with a questions regarding the above. According to CFAI EoC, for IFRS:

Components of periodic pension costs that would be reported in P&L: - current & past service costs - net interest expense (net pension liability/asset * discount rate)

Components of periodic pension costs that would be reported in OCI: - remeasurement component (i) net return on plan assets= actual return on plan assets-(plan assets*discount rate (ii) actuarial gains & losses

Given these are answers from CFAI, I can conclude that the periodic pension expenses consist of both components: - current & past service costs - net interest expense (net pension liability/asset * discount rate) - remeasurement component (i) net return on plan assets= actual return on plan assets-(plan assets*discount rate (ii) actuarial gains & losses

Question : Is my assumption right? If so, how does this compare to the above mentioned:

"IFRS: current service costs interest costs (+) past service costs (+) expected return using discount rate (-) "

It does not seem to be the same, or am I completely missing something?

Help is again much appreciated!

Many thanks!