Economic Pension Expense - Plan ammendments to sub?

CFA Level II
#1

Are we supposed to add subtract plan ammendments when calculating economic pension expense? Economic Pension Expense = Service cost + interest cost + ammendments - actual return? i’ve seen questions, where they dont touch ammendments when calculating econ pension expense…

#2

The version I know is w/o any amendments added.

#3

wtf? seriously? Read somewhere in CFAI that ammendments are to be subtracted? Or I think I may be losing it!! thanks for the reply tho dude

#4

TheTrader Wrote: ------------------------------------------------------- > Economic Pension Expense = Service cost + interest > cost + ammendments - actual return? correct

#5

this has confused me as well. it seems to be some difference between Plan Amendments and then the Actuarial (gains) losses stuff. My workaround is to memorize both of the ways. It has worked on ever Economic Pension Expense question so far. Yes, the formula can include some amendments, but not every question will test this. However, they usually provide you with the FV and PBO info so you need to remember the other method too. The EPE= Changed in funded status- employer contributions formula. i would love for someone (cp) to expand on the plan amendments issue.

#6

also EPE = change in PBO + BP - Actual Returns EPE = change in Funded status - Employer contributions

#7

Err 1 for subtracting ammendments 1 for not subtracting ammendments Need a tie breaker… any pension gurus here??

#8

you do Delta PBO + Benefits Paid - Actual Ret. on Plan Assets --> your delta PBO includes any amendments in there already.

#9

you add/subtract actuarial gain loss from plan amendments from current period. this is what i know and i will stick to it

#10

Add the loss, subtract the gain.

#11

The key is to only add/subtract plan amendments in the CURRENT period.

#12

i believe that plan ammendments are always included (it is included in the problem in schweser when they bring up economic pension expense) but i like cpk’s method. since both methods give you same answer, do change in funded status - contributions and then you dont have to worry about the plan ammendments. just do it the other way to check your answer.

#13

The easiest way to do Econ. pension exp. is to find the change in PBO between two periods and then subtract the employers contributions. By plan ammendments do you mean “actuarial assumptions”? Becuase I saw that being deducted as well in a schweser exam. this is how it went: service cost + interest cost - actuarial gain - actual returns on asstes

#14

chad17 Wrote: ------------------------------------------------------- > The easiest way to do Econ. pension exp. is to > find the change in PBO between two periods and > then subtract the employers contributions. > > By plan ammendments do you mean “actuarial > assumptions”? Becuase I saw that being deducted as > well in a schweser exam. this is how it went: > > service cost + interest cost - actuarial gain - > actual returns on asstes I think you mean change in fund status - contributions.

#15

change in PBO + Benefits Paid - Actual Return on Plan assets also = Change in Funded Status - Employer Contributions.

#16

i squeezed my brain to conclude that actuaial gain/loss(more specifically, amortized acturial gains/losses are part of plan amendment), only these gain/loss are recognized and therefore should be included in the calculation of economic pension expense. i may be wrong, but can someone correct me if i’m wrong?

#17

Basically economic pension expense takes out anything that can be used to smooth the pension expense. Economic pension expense is an adjusted pension expense, (taking out management’s contributions or benefits paid) The change in PBO still contains the effects of actuarial gain/losses but not the benefits paid & then you subtract the actual return on plan assets.