Expected vs Actual return, Actuarial gain/loss

Hello,

In practice problem 7-12 at the end of the CFA reading (p240), question 11 asks how much the actual return is on plan assets.

The answer is Actual gain = Expected return + Actuarial gain.

Now there are 2 things that I don’t understand.

  1. on page 200, it says that actuarial gains/losses can arise from two sources: changes in actuarial assumptions and differences between expected and actual returns. So coming back to the question, how am I supposed to know that actuarial gain is not attributable to a change in actuarial assumptions?

  2. If actuarial gains/losses arise from changes in actuarial assumptions, why is there an actuarial gain under “change in plan assets”? If I change an assumption, it should affect my pension obligation, not my investment portfolio, no?

While writing all this, I came to a possible answer to my question: actuarial gains/losses on the benefit obligation side come from changes in actuarial assumptions, while those on the plan asset side come from differences in expected & actual returns. Is that correct?

Thank you for your help.

look carfully.

2 sources of change

  1. change in assumption which only impact liability

  2. difference in return which impact the asset

exhibit 2 clearly said _ CHANGE IN PLANT ASSETS _ which is only the point 2 of actuarial gain/loss

Thanks for your answer.

Now I checked another example, example 8 on page 222 where the actual return on plant assets is computed. According to this, actual return = expected return + actuarial gains/losses (on plan assets) + currency translations, plan amendments, acquisitons etc.

So coming back to question 11 on page 242 and according to the above example, actual return should be = expected return + actuarial gain PLUS settlement/curtailment/acquisiton PLUS exchange rate adjustment, not only expected return + actuarial gain.

I admit that the question asks for an approximate amount, but for the sake of precision, shouldn’t these two items be taken into account in calculating actual return?