Hmm…I don’t understand pension much… here is the question: Economic pension exp was 4250. Employee contribution was 5000. What’s the change in operating cash flow & financing cash flow? Explanation is needed plz… Thanks.
Assuming 40% tax rate CFF down by 450 and CFO up by 450 ? (could be wrong)
i think it is cff down and cfo up but i didnt know you have to include taxes. i am going based on what the quicksheet says about econoimc pension expense, which is all i have access to right now: if econoimc pension expense > firm contribution, diff = borrowing (and recass from CFO to CFF). so since contrib here is > expense i assume its the opposite
it is after tax thingie
if it had been the opposite (contributions were 4250 and expense was 5000), would it be CFF up by 450 and CFO down by 450
^ yes - because then it’s like a borrowing trnx. So CFF up and CFO down.
SG is correct on taxes and CF effects. It makes sense that you would pay taxes on overfunding, not because its an after tax cost as CP has stated. Here’s an example: If you underfund for a few years, you are still declaring interest costs as well as service expenses, whether you are actually sticking money in the fund or not (as accounting is a creative science). Meaning that you could get the tax cut by overstating youre expenses. So, the year you want to catch up and fund youre pension plan, the GVT, will prevent you from declaring the same expense twice, and will make you pay taxes the second time around… This works in reverse as well (overfunding ahead of a period of underfunding).