Pension Accounting Question - Expected Return on Plan Assets Assumption

An increase in the assumed expected return on plan assets reduces pension expense on the P&L, but total periodic pension cost is not affected by a change in the expected return on plan assets. Why is that?

Total periodic pension cost = Current service cost + Interest cost + Past service cost

− Actuarial gains + Actuarial losses − Actual return on plan assets

Nowhere in that formula do you see expected return on plan assets, and for good reason: if it were in there, companies would jack up their expected return so that their pension cost would be zero.

Cool!

Thanks S2000magician! Your posts in other threads have been extremely helpful in studying as well.

One other question for the US GAAP pension expense equation: since the expected return on plan assets is a part of this equation, what deincentivizes companies from not jacking up their expected return so that their pension expense would be zero?

There’s an adjustment from actual vs expected, that I think amortizes over OCI… Curious to know the exact details!