CFAI Volume 2 Page 134: If actuarial gains are supposed to be subtracted from PBO, why is the actuarial gain of 784 being added? I thought maybe it’s actually a loss but just put into a line item called actuarial gain, but the answer to #11 also callls it a gain.
To reconcile PBO, you add your losses and subtract your gains.
so actuarial gains added to P/E and subtracted from PBO, and vice versa, got it thx
expected return + actuarial gain = actual asset returns. as this is part of plan assets it is added - a loss would be subtracted. actuarial gain for the PBO decreases it
PBO is already negative. (it is a liability). Actuarial Gain on it makes it less negative… (which is it decreases it, numerically).
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what is the impact on pension expense of an actuarial gain? we should add it back to increase the pension expense right?
wonder2008 Wrote: ------------------------------------------------------- > what is the impact on pension expense of an > actuarial gain? we should add it back to increase > the pension expense right? No. A gain reduces our expense and a loss increases our expense. You should add expenses and subtract gains. Look at the pension expense formula. We are subtracting our expected return on assets since it reduces our expense, right? Follow the same logic.
you are right thanks
> so actuarial gains added to P/E and subtracted from PBO, and vice versa, got it thx No, actuarial gains are always subtracted. They always reduce your expense (P.E.) and your obligation (DBO).
To add more (bpdulog/cpk correct me if I’m off): Actuarial gains decrease pension expense (PE goes from 500 to 400), decrease PBO (PBO goes from 200 to 100), and increases FVPA (since Actual Returns = Expected Return + Actuarial gains and FVPA = Actual Returns + Emp Contr - Benefits) Actuarial losses increase pension expense (PE goes from 500 to 600), increase PBO (PBO goes from 200 to 300), and decreases FVPA (since Actual Returns = Expected Return - Actuarial losses and FVPA = Actual Returns + Emp Contr - Benefits)
> Actual Returns = Expected Return - Actuarial losses and FVPA = Actual Returns + Emp Contr - Benefits) This is correct only if the actuarial gains you are considering are related to return on plan assets. Otherwise, you should not add them here.
I assume you are referring to the Actual returns = Expected Returns + Actuarial Gains. I got this from CFAI Volume 2 Page 146 Problem #11. There as no stipulation in regards to the relations of gains to FVPA. I assume it is though.
Yes, in the same example you are looking at actuarial gain is reported two times, once in the DBO as 925, and in plan assets as 784, so only the 784 amount is related to plan assets.
oh yea of course. youve got to add the actuarial gain that you find in the FVPA assets section. good catch.
in assets add, in liabilities subtract assets fv end = fv beg +er conts-benefits pd +exp return on assets +/-actuarial gains/losses on assets liab pbo end= pbo beg+csc+ic-benefits pad +/-actuarial loss/gains