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Net periodic pension cost

  1. What is net periodic pension cost n its difference with total periodic pension cost?
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There is no difference.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

You might be thinking of total periodic pension costs vs periodic pension costs?

I just find it easier to remember the formula

Total periodic:

+Current Service cost

+Past service cost

+Interest expense

+Actuarial loss

-Actuarial gain

-Actual return

Periodic pension cost

Same as above but you use expected return instead of actual return

Shauncore wrote:
You might be thinking of total periodic pension costs vs periodic pension costs?

I just find it easier to remember the formula

Total periodic:

+Current Service cost

+Past service cost

+Interest expense

+Actuarial loss

-Actuarial gain

-Actual return

Periodic pension cost

Same as above but you use expected return instead of actual return

With all due respect, you’re mistaken here.

Total periodic pension cost and periodic pension cost are the same, and neither uses expected return.

Expected return is used to compute Pension Expense (the portion of periodic pension cost that appears on the income statement) and OCI (the remainder: periodic pension cost minus Pension Expense), but the cost is the cost, and it always uses actual numbers.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

S2000magician wrote:

Shauncore wrote:
You might be thinking of total periodic pension costs vs periodic pension costs?

I just find it easier to remember the formula

Total periodic:

+Current Service cost

+Past service cost

+Interest expense

+Actuarial loss

-Actuarial gain

-Actual return

Periodic pension cost

Same as above but you use expected return instead of actual return

With all due respect, you’re mistaken here.

Total periodic pension cost and periodic pension cost are the same, and neither uses expected return.

Expected return is used to compute Pension Expense (the portion of periodic pension cost that appears on the income statement) and OCI (the remainder: periodic pension cost minus Pension Expense), but the cost is the cost, and it always uses actual numbers.

This is straight from the CFAI books:

Also similar to IFRS, under US GAAP the periodic pension cost for P&L includes interest expense on pension obligations (which increases the amount of the periodic cost) and returns on the pension plan assets (which reduce the amount of the periodic cost). Also, returns on plan assets included in the P&L recognition of pension costs use an expected return rather than the actual return

The main reason I remember this is because CFAI Qbank questions were very explicit between when to use actual returns (total period) and when to use expected return (periodic).

Shauncore wrote:
S2000magician wrote:
Shauncore wrote:
You might be thinking of total periodic pension costs vs periodic pension costs?

I just find it easier to remember the formula

Total periodic:

+Current Service cost

+Past service cost

+Interest expense

+Actuarial loss

-Actuarial gain

-Actual return

Periodic pension cost

Same as above but you use expected return instead of actual return

With all due respect, you’re mistaken here.

Total periodic pension cost and periodic pension cost are the same, and neither uses expected return.

Expected return is used to compute Pension Expense (the portion of periodic pension cost that appears on the income statement) and OCI (the remainder: periodic pension cost minus Pension Expense), but the cost is the cost, and it always uses actual numbers.

This is straight from the CFAI books:

Also similar to IFRS, under US GAAP the periodic pension cost for P&L includes interest expense on pension obligations (which increases the amount of the periodic cost) and returns on the pension plan assets (which reduce the amount of the periodic cost). Also, returns on plan assets included in the P&L recognition of pension costs use an expected return rather than the actual return

The main reason I remember this is because CFAI Qbank questions were very explicit between when to use actual returns (total period) and when to use expected return (periodic).

Notice what I underlined: for P&L.

That’s Pension Expense (which is what I wrote).

The cost is the cost, whether you show it on the P&L (i.e., income statement) or in OCI, or as a combination of the twain.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

S2000magician wrote:

Shauncore wrote:
S2000magician wrote:
Shauncore wrote:
You might be thinking of total periodic pension costs vs periodic pension costs?

I just find it easier to remember the formula

Total periodic:

+Current Service cost

+Past service cost

+Interest expense

+Actuarial loss

-Actuarial gain

-Actual return

Periodic pension cost

Same as above but you use expected return instead of actual return

With all due respect, you’re mistaken here.

Total periodic pension cost and periodic pension cost are the same, and neither uses expected return.

Expected return is used to compute Pension Expense (the portion of periodic pension cost that appears on the income statement) and OCI (the remainder: periodic pension cost minus Pension Expense), but the cost is the cost, and it always uses actual numbers.

This is straight from the CFAI books:

Also similar to IFRS, under US GAAP the periodic pension cost for P&L includes interest expense on pension obligations (which increases the amount of the periodic cost) and returns on the pension plan assets (which reduce the amount of the periodic cost). Also, returns on plan assets included in the P&L recognition of pension costs use an expected return rather than the actual return

The main reason I remember this is because CFAI Qbank questions were very explicit between when to use actual returns (total period) and when to use expected return (periodic).

Notice what I underlined: for P&L.

That’s Pension Expense (which is what I wrote).

The cost is the cost, whether you show it on the P&L (i.e., income statement) or in OCI, or as a combination of the twain.

Hmmm I’m going to have to just disagree then, respectfully. The CFAI QBank laid it out the way I wrote it (actual for total and expected for periodic) and Mark Meldrum’s videos say the same.

Anyways this might all be moot because OP might not be asking this.

Shauncore wrote:
S2000magician wrote:
Shauncore wrote:
S2000magician wrote:
Shauncore wrote:
You might be thinking of total periodic pension costs vs periodic pension costs?

I just find it easier to remember the formula

Total periodic:

+Current Service cost

+Past service cost

+Interest expense

+Actuarial loss

-Actuarial gain

-Actual return

Periodic pension cost

Same as above but you use expected return instead of actual return

With all due respect, you’re mistaken here.

Total periodic pension cost and periodic pension cost are the same, and neither uses expected return.

Expected return is used to compute Pension Expense (the portion of periodic pension cost that appears on the income statement) and OCI (the remainder: periodic pension cost minus Pension Expense), but the cost is the cost, and it always uses actual numbers.

This is straight from the CFAI books:

Also similar to IFRS, under US GAAP the periodic pension cost for P&L includes interest expense on pension obligations (which increases the amount of the periodic cost) and returns on the pension plan assets (which reduce the amount of the periodic cost). Also, returns on plan assets included in the P&L recognition of pension costs use an expected return rather than the actual return

The main reason I remember this is because CFAI Qbank questions were very explicit between when to use actual returns (total period) and when to use expected return (periodic).

Notice what I underlined: for P&L.

That’s Pension Expense (which is what I wrote).

The cost is the cost, whether you show it on the P&L (i.e., income statement) or in OCI, or as a combination of the twain.

Hmmm I’m going to have to just disagree then, respectfully. The CFAI QBank laid it out the way I wrote it (actual for total and expected for periodic) and Mark Meldrum’s videos say the same.

Anyways this might all be moot because OP might not be asking this.

I understand.

I’d be surprised if the CFA Institute question bank claimed that there’s a difference between total periodic pension cost and pension cost, because there isn’t.  I suspect that if you review those questions, you’ll see that whenever they used expected return, they were explicit in asking about Pension Expense (which they may have identified as the portion of pension cost recognized on the income statement).  If any prep provider says that there’s a difference between total pension cost and pension cost, they’re simply wrong.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

Shauncore wrote:

S2000magician wrote:

Shauncore wrote:
S2000magician wrote:
Shauncore wrote:
You might be thinking of total periodic pension costs vs periodic pension costs?

I just find it easier to remember the formula

Total periodic:

+Current Service cost

+Past service cost

+Interest expense

+Actuarial loss

-Actuarial gain

-Actual return

Periodic pension cost

Same as above but you use expected return instead of actual return

With all due respect, you’re mistaken here.

Total periodic pension cost and periodic pension cost are the same, and neither uses expected return.

Expected return is used to compute Pension Expense (the portion of periodic pension cost that appears on the income statement) and OCI (the remainder: periodic pension cost minus Pension Expense), but the cost is the cost, and it always uses actual numbers.

This is straight from the CFAI books:

Also similar to IFRS, under US GAAP the periodic pension cost for P&L includes interest expense on pension obligations (which increases the amount of the periodic cost) and returns on the pension plan assets (which reduce the amount of the periodic cost). Also, returns on plan assets included in the P&L recognition of pension costs use an expected return rather than the actual return

The main reason I remember this is because CFAI Qbank questions were very explicit between when to use actual returns (total period) and when to use expected return (periodic).

Notice what I underlined: for P&L.

That’s Pension Expense (which is what I wrote).

The cost is the cost, whether you show it on the P&L (i.e., income statement) or in OCI, or as a combination of the twain.

Hmmm I’m going to have to just disagree then, respectfully. The CFAI QBank laid it out the way I wrote it (actual for total and expected for periodic) and Mark Meldrum’s videos say the same.

Anyways this might all be moot because OP might not be asking this.

S2000magician is correct.

- There is no difference between total periodic pension cost and periodic pension cost.

Total periodic pension cost (periodic pension cost)
= Contributions - Change in funded status
= Current service cost + Past service cost + Interest expense + Actuarial loss - Actual return on plan assets - Actuarial gain

- There is a distinction between periodic pension cost and periodic pension cost in P&L (Income statement) and periodic pension cost in OCI.

Periodic pension cost = Periodic pension cost in P&L + Periodic pension cost in OCI

Periodic pension cost in P&L (IFRS)
= Current service cost + Past service cost + Net interest expense/(income)
= Current service cost + Past service cost + Discount rate x (Beginning PBO - Beginning Plan Assets)

Periodic pension cost in OCI (IFRS)
= Periodic pension cost - Periodic pension cost in P&L
= (Actuarial loss - Actuarial gain) + (Discount rate x Beginning Plan Assets - Actual return on plan assets)

———————————

Periodic pension cost in the P&L (US GAAP)
= Current service cost + Amortized Past service cost + Interest expense - Expected return + Amortized actuarial loss/(gain)
= Current service cost + Amortized Past service cost + (Discount rate x Beginning PBO) - (Expected return% x Beginning Plan Assets)

Periodic pension cost in OCI (US GAAP)
= Periodic pension cost - Periodic pension cost in P&L

———————————–

You might want to raise the issue to your prep provider. 

——————————————
Find useful resources on the CFA exams at http://www.youtube.com/c/FabianMoa

fino_abama wrote:
S2000magician is correct.

That happens occasionally.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/