Periodic pension cost vs periodic pension expense

Can someone explain the difference between total periodic pension cost and periodic pension expense??

Can someone help out with this??

The periodic pension expense is what the company shows in the income statement. The total pension cost is the total cost for the year, part of it is shown in the IS and part of it in OCI. Total pension cost is same under both IFRS and US GAAP, periodic pension expense differs.


Pension Expense is a subset of Pension Cost.

Pension Expense is what the Company is showing on the IS whereas teh Pension cost is the economic Pension Expense.

Hi Please find the link below for Pension Accounting

an extra supplemental i had bookedmarked form a while ago

Total periodic pension cost refers to pension cost in the income statement and equity (Other comprehensive income). Periodic pension cost refers to only the pension cost in the income statement.

great, got it!! :slight_smile: thanks a lot guys for clearing the doubt…

I have read the material, the “Dumbed Down Pension Understanding” that was posted in another thread, and all of the posts above but am having a bit of dificulty understanding on this topic. I liked how you described Pension Expense as a subset of TPPC (those parts of TPPC recognized on the IS vs. OCI on the Bal. Sheet). That made a lot of sense to me until I got to the part of adjustments and how increasing the expected rate of return on planned assets will decrease the Pension expesnse. That part actually makes sense to me just from lookign at the equation, but the material states that it will not have an affect on TPPC? If, Pension expense is in fact a subset of TPPC, then wouldn’t we expect to see the Pension Expense and TPPC decrease while OCI on the BS would not be affected?

I don’t believe the pension expense is a “subset” of the total periodic pension cost, per se, because the former term incorporates an expected return, and the latter is just a group of costs. I’ll try to explain and hopefully reinforce the concept for myself, so if anyone sees an error, please call me on it! The curriculum never really distinguishes period “pension expense” from “pension cost,” but “expense” sounds like GAAP terminology to me. For GAAP’s "pension expense: Current service cost + Interest cost on PBO – Expected return on pension assets . . . and, likely, . . . +/– current amortized portion of the total actuarial loss/gain + Amortized portion of all past service. To make sure we add in confusing jargon, the “+/– current amortized portion of the total actuarial loss/gain + Amortized portion of all past service” is also called the “remeasurement.” For IFRS’s equivalent, “pension cost,” it’s calculated on two statements: On the IS, aka the P/L statement: Current [as well as the WHOLE chunk of new past] service cost + NET interest expense . . . + . . . Continuing over on the BS in OCI, NEVER AMORTIZED to the IS: +/– any actuarial loss/gain. The key differences: 1) IFRS takes on ALL past service costs on the P/L at t=0. GAAP puts any in OCI dribbles them onto the IS. 2.a.i) GAAP is based on TWO distinctly separate rates being used for their pension liability and pension asset, the discount rate and the expected return rate. 2.a.ii) Again, GAAP’s IS interest figure is figured out in a way that incorporates the pension asset and liability as two distinct values when multiplying them by the income interest rate and interest expense rate. (Interest expense from PBO – Expected interest income/return on pension assets). 2.b.i) IFRS instead works off the ‘funded status’: (Pension asset – PBO), and then . . . 2.b.ii) multiplies the result by a SINGLE discount rate of corporate bonds to get the “NET interest expense/income.” [Since most companies ostensibly have a pension deficit, this will usually create an expense; GAAP could fudge their “expected” return to make what’s likely to be an expense look not so bad (which is why analysts need to make adjustments). Since this is all happening in the operating section of the IS, it’s an extra big deal.] The “total periodic pension cost” is calculated, per the curriculum, by: “summing the periodic components of cost or, alternatively, by adjusting the change in the net pension liability or asset for the amount of employer contributions.” So, the period’s COSTS alone aren’t affected by the expected return on assets because the return is a hypothetical one based on a rate management selects, not the vanilla (corporate bond) discount rate used for the obligation. Moreover, the pension asset is figured out using the real returns of the asset base, not the phony rate management chooses. Also, remember: “Periodic pension cost” = Ending funded status – Employer contributions – Beginning funded status. Recall why GAAP uses an expected rate… the “pension expense” refers to the income statement, which shows management’s accrual-based “performance.” The company will ideally try to match the expected rate of return with what is going to be the pension asset’s actual rate of return over a long time. Here they’d hire some pension consultant or actuary to figure that out. The reason they just don’t use the actual rate of return on the IS is that would likely be more volatile. Actual return of pension assets (i.e., long-term bond prices) isn’t really in the “control” of management on a quarter-to-quarter/yearly basis because markets are volatile, so it might be unfair to hold their performance accountable based on actual returns, especially if it’s operating performance. Using the expected rate allows any difference between the pension asset’s actual and expected return to be kinda ignored and slid over into OCI (not impacting net income, the bottom line). The underlying principle is if management/actuaries ‘expect’ proper rates, anything moving into OCI will work itself out—you’ll have, over the long term, equal good/bad bond markets where what’s expected in the period and what’s actually returned don’t match up, evening out as returns revert to the mean over decades. If they overestimate the rate, the actuarial losses pile up in OCI and will need to be released. I guess they could conceivably underestimate the rate to pile up some gains for a rainy day. Plus, keep in mind under GAAP they don’t have to wait for the corridor to pile up—in fact, they don’t need to put them in OCI ever (although most do), they could go directly to the IS. So, yes, increased expected return lowers the “pension expense” on the income statement based on our formula above, but if the increase expected return is far-fetched/unrealistic, it’s bound to end poorly. The total periodic pension cost is the sum of all the period’s costs. Current service cost, interest cost, and any past service costs. None of these incorporate the expected return of plan assets rate, but instead use the discount rate used to calculate the PBO.