Help : Total Periodic Pension Cost VS Pension Expense

CFA Level II FRA
#1

Please help,

I know this topic has been discussed a lot here and I read almost all of the topics about it. However, there’s still something that I just don’t get … sad

What is the difference between Total Periodic Pension Cost VS Pension Expense ? I know the formulas are different.

Some help would be VERY appreciated. yes

#2

Expense refers to the portion that flow through P and L

#3

. . . whereas “cost” refers to everything: what goes through the income statement and what goes direct to equity.

#4

Pension costs = Total pension costs incurred during the period.

Pension expenses = Part of the total pension costs that is recorded on your income statement.

There are 2 ways to calculate your pension costs

  1. (Ending funding status - Beginning funding stats) + employer contribution

which is equivalent to

(Service costs + interset costs + Actualrial loss - Actuarial gain - Benefits paid) - (Actual gain on asset - Benefit paid + employer contribution) + employer contribution

The first part includes all items that change your pension obligation, the second part includes all items that change your pension assets…So the difference is your change in funding status

  1. Service costs + Interest costs + Actuarial loss - Actuarial gain - Actual gain on asset

Pension expenses are calculated differently under IFRS and GAAP

#5

Courtesy of bloodline: http://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91321052

#6

Thanks guys !

#7

My pleasure.

#8

Hi is economic pension expense same as total pension expense or period pension cost…?

By economic meaning smoothing

#9

Hi is economic pension expense same as total pension expense or period pension cost…?

By economic meaning smoothing

#10

Hi,

Isn’t TPPC = Contributions - (end Funded Status - beg Funded Status) = Contributions - change Funded Status?

#11

Periodic cost as S2000 says is what goes through P+L total is the cost inclusive of re measurements that are allocated to OCI. For Total periodic cost, the reason the sign ‘changes’ in different cirriculum when adding or subtracting er contribution from change in funded status is negligible, as long as its consistent with the format of your funding status calculation as FS can be reported as an asset/(liability) or negative liability/(negative asset) they are the same thing essentially. Total Periodic cost = Change in FS + ER contribution (where FS is calculated as +PBO - Plan Assets) ” ” ” - ER contribution (where FS is calculated as +Plan assets - PBO) easy rule to remember ’your’ sign of +/- ER cont must be the opposite to ‘your’ sign of plan assets in FS calc because ER Contr is part of plan assets.

#12

Economic expense will be equal to period pension cost, however this was a old term used prior to 2013 curriculum, you can find this term in old mock.

#13

Fixed that for you.

This mistake is exactly the point of the thread: do not confuse cost and expense.