How does the discount rate, or pension expense or compensation change the assumption of a plan

CFA Level II
#1

[original post removed]

#2

Do pensions get affected by assumptipns?

#3

Oh, come on, 110 more candidate pledge breaches like this and I’ll know my score. You’re taking the whole fun out of it.

#4

^LOL

#5

This info is not for me but for a friend who is taking level 2 next year. How is asking impact of assumptions on pensions a pledge? Isnt this the most important part of pensions and mainly half of the topic? I am asking generally the assumptiom impact on funded status, pension expense, and service and interest cost.

#6

I guess it isn’t important. You only have to remember the effect on funded status, pension expense, and service and interest cost.

#7

Yes

#8

The key is to consider the possible impact of each assumption on financial statements, and thus any effect that should stem from this assumption (denominator/numerator).

#9

However do keep in mind that PBO and plan assets ar lagely ignored in determining a firm’s total assets or liabilities

#10

It depend of the assumed assumption, but if there is an impact through OCI… Do you know what I mean ?

#11

OCI relates to equity…

#12

I guess you should check these formulae, but if you listed them, you’d have an idea of the direct or indirect impact on them.

We cannot give more details here, otherwhise we’d violate Standard VII.

#13

I just want to know the impact of assumptions on the pension expense and compensation and the interest cost etc and any othet thing that would be impacted

#14

How do you violate the standard by discussing the impact of assumptions on ratios? I thought that what this forum is about. To ask questions about the finance-related topics and provide our subjective responses. I don’t see anybody talking about the actual test material, at least I hope so. I am also interested to understand how assumptions impact ratios.

#15

Yeah, good luck making idiots out of CFAI.

#16
#17

You’ll not violate the Standard VII as long as the question is not related to actual Exam. This is why the topic seems to be an issue… Nonetheless there is no problem with unrelated Exam questions.

#18

ok the assumption impacts are a bit clearer now

#19

Ratios for sure will get impacted :-

Let us take the example of profitability:

In US GAAP, if the unamortized value of Actuarial Gains/Losses exceed 10% of the Value of funded status, we need to amortize those G/L in the Income Statement. This will impact Net Income and hence profitability. This NI amount will eventually roll to Equity and so it could also impact ratios that involve BS.

#20

Yes I do see Net Income impacted