pension asset/liability

ok, so it’s been a while since john harris’s class. under the old standard, Plan Assets - PBO = funded status then you ADD back unrecognized losses and unrecognized prior service cost. (which you don’t do under the new standard) Why did we add back, instead of subtracting, the unrecognized loss again? seems counterintuitive to me and i know it’s because i don’t have the concept down pat. i have to get my fsa score up! help? thanks.

I was wrong . . .

the reason why ‘ADD BACK’ is the fact they are ‘UNRECOGNIZED LOSSES AND COST’ , actually these losses and cost are not recognized yet. hope i will be helpful :slight_smile:

you don’t have this figured 100% but i think it’s because the funded status recognises everything but the old standard doesn’t so you need to add back losses that you don’t have to recognise and substract gains that you don’t have to recognise ??

Think about it this way cfasf1: Say your plan assets are 100 and your PBO is 120 = 20 liability (this is the new standard), embedded in the PBO number is all the losses and prior service costs (ie they have been recognized under the new standard). So to get back to the old standard you have to undue the recognition. That means adding back the losses and subtracting out the gains. It is kind of like the indirect method of cash flows or adding back depreciation when doing FCF calcs.

^^^ That helps a lot to think about it as indirect.

so, in a new example, Fund assets are, say, 400. PBO is 350. so under the new standard, it is a pension asset of 50. but, let’s say we are using the old standard. and we have a unrecognized loss of 25. now the pension asset is 75, not 25, correct? seems counterintuitive to be adding back a loss, because i think this is less representative of the true position. but i guess that’s why we have the new standard. i just have to get used to it… is this correct?

In the new standard the PBO = 325 + 25 (RECOGNIZED LOSS)=350 The old standard the PBO = 325 (the 25 is UNRECOGNIZED) Therefore under the old standard 400-325=75

you guys answered my question before i finished writing… thanks. good illustration, mwvt. i feel like i’ve been slackng the most in fsa, because i like it the least out of all of the sections. It’s not like it’s an important section or anything! i need to get it together!