Folks, see below a fairly easy Eco Pension Expense Q; It is nto this Q i am worried about but wghich formula(s) to learn?? Federal Companies reported the following information in the footnotes to its most recent financial statements: PBO $65,000,000 Ending PBO 90,000,000 Service Cost 27,000,000 Interest Cost 3,000,000 Benefits Paid 5,000,000 Actual Return on Plan Assets 7,500,000 Expected Return on Plan Assets 8,500,000 Given the information above, calculate Federal¡¦s economic pension expense for the year. A) $41,000,000. B) $22,500,000. C) $27,500,000. The correct answer was B) $22,500,000. Economic pension expense = service cost + interest cost ¡V actual return on plan assets + plan ammendments Ok, but I also have the following formulas for Economic pension expense which do not come up wIth thE same answer??? 1) Change PBO -benefits -Actual Rtn + plan amendments Im not happyƒº
Change PBO = 35 Mill - Benefits Paid = (5) Mill - Actual Returns = (7.5) Mill = 22.5 Mill no information with respect to Plan Amendments is given. your other way: 27 + 3 - 7.5 = 22.5
Change in PBO is (90 - 65) = 25. No idea if you second formula is right. Another way to calculate Economic Pension Expense is: Change in funded status - contributions
The other formula should be: Change in PBO + Benefits paid - Actual return on Plan assets Benefits paid increase economic pension expense. Expense = Actual cash paid + accrued amount. Accrued amount is reflected as increase in liability (PBO). Expense is offset by ACTUAL return on plan assets.
if you like the change in funded status-contribs way, here we are not given enough info to do it that way. With the change in PBO way, you get that the PBO went up 25, then you ADD back benefits paid because these were DEDUCTED in going from beginning PBO to ending PBO, because paying benefits decreases the obligation that you owe. Then deduct actual return to offset your expense. Hope that helps. I think the easier way is: service cost 27 + interest cost 3 - 7.5 actual return = 22.5, but what if they leave out other things that make up the PBO like amortized prior service cost etc…