Hi, I just worked a question from Schweser re the affect of expected return on plan assets on Funded status. Am I correct in saying that a change in expected return will have an impact on pension expense but no affect on funded status? While a change in actual return on plan assets has an impact on funded status? Thank you
new standard- fmv of plan assets - PBO = funded status. so the actual return on the new standard is what matters- you up the ACTUAL return, plan assets up, funded status up. expected return doesn’t matter anymore in the new standard- your funded status reflects reality, not expectations, so i’d say under new standard expected return wouldn’t touch your funded status. old standard- i want to say since it was more of a smoothing thing, upping the expected probably would’ve improved your funded status, but don’t quote me on that. good morning team.
bannisja Wrote: ------------------------------------------------------- > old standard- i want to say since it was more of a > smoothing thing, upping the expected probably > would’ve improved your funded status, but don’t > quote me on that. > > good morning team. Sorry couldn’ resist 
Anyways you are correct. Under the old standard (pre-2006) you calculate the market-related-value of the pension to get your expense. MRV = Beginning MV + expected return + contributions - benifits paid + 20% of actual deffered gains/losses from the past 5 years. So pension expense is directly effected by your assumption of expected return. The reasoning was to smooth things over time, as long as you were inside the “corridor” you were OK.