Defined Benefit Plan - Adjusting Cashflow


i’m struggling with the Cashflow Adjustment from CFO to CFF. I understand that you can pay less than the total periodic cost, which will increase liabilities or pay more, which would reduce liabilities.

What I don’t understand is, the contribution is a cash outflow from your asset. The total Periodic Cost is a Non-Cash event, why would I change that amount from CFO to CFF on the amount of a NON CASH event?

Pretend that the company has a CFO of Zero and Funded Status of +70 USD (net of Tax). I would have to add it in CFO and subtract from CFF, but no cash was effectively used in any of those cash accounts, so I would missrepresent the actual cash movement…?

I’m lost, pls help!!!

the why is to help you as an analyst compare two different companies -

situation a) one that had a defined benefit plan and another that did not

situation b) two companies that had different amounts of pension benefit expenses, maybe different tax rates

situation c) company A paid out pension benefits, B did not - but was more profitable in the year of analysis.

and all that you have are the financial statements to make the comparison with.

you need to be comparing apples to apples.