Do you use Actual Return on PA or Expected Return to calc?
The Elan material says both are correct, but in the mock, we are supposed to use ERPA? I’m really confused…
PPC=CSC+PSC+IE+AL-AG-ARPA or ERPA?
I’m very concused by this PPC calculation.
In Elan materials, ERPA did not even show up once for PPC calculation. It’s always been ARPA. Now CFAI is telling me to use ERPA?
Also Elan tells me PPC=changes in Fund Status+Employer contributions
CFAI mock tells me PPC =Employer contributions-changs in Fund Status?
I’m so screwed…
I used Elan and I use the discount rate * net pension liabilities to calculate interest cost. If you’re asked to adjust the Income statment (although this is usually for US GAAP that reports pension cost on the IS in one line) you use actual return.
Periodic pension cost is ending net liabilities - beginning net liabilities + employers contributions. If there’s a greater net liability at the end of the year, then this will increase the cost.
As for the terminology ‘fund status’, that’s a confusing one. I believe a positive funded status means there is a net liabilitity, but I’d like someone to confirm (don’t have my books with me).
When in doubt use the curriculum and stop being lazy. Remember that the mock and the answers are not provided by cfai it is done by a third party
Positive fund status does mean its a net liability
If you look at CFAI Mock Atlantic Preseres, Q5 to calc the company’s PPC,they used expected return on PA instead of actual return on PA.
My bad about the Fund Status formula. Elan is correct:
Fund Status= PBO-PA=net pension liability.
PPC=End FS- Beg FS+Employer Contribution
In the mock, the End FS
After looking up PPC in CFAI book, I confirm Elan is correct.
Per CFAI Page 184,
GAAP PPC=CSC+PSC+IE-exp return on PA+AL-AG-(ARPA-ERPA)
=CSC+PSC+IE+AL-AG-ARPA (Elan)
So why is Q5 using ERPA instead of ARPA?
Totally confused.
It is change in funded status (-) Employers contribution, ignore negative sign
where changed in funded status= Ending FS- Beginning FS
Funded Status= PBO-Plan Asset
Essentially, it’s the same thing.
Elan’s treats the cost as a positive figure so employer contribution is added to represent a higher cost.
CFAI treats the cost as a negative figure so employer contribution is decucted to represent a higher cost.
Pension is one of the most confusing topics in the curriculum as it was so poorly written, but I think Elan’s did a great job on it and it has become one of my strongest areas.
Agree elan has done a good job in pension.
I agree. I read through the pension part in the CFAI part for the 1st time today. It was horrible.
How about the question in the mock that I mentioned above? Should we use expected return or actual return?
I seriously doubt if the answer is correct.
I agree. I read through the pension part in the CFAI part for the 1st time today. It was horrible.
How about the question in the mock that I mentioned above? Should we use expected return or actual return?
I seriously doubt if the answer is correct.
First you have to know if the question is asking for
“Total periodic pension cost” = Entire pension cost
“periodic pension cost” = Part of pension cost that you report on P&L (also = pension expense)
Total pension cost is the same under GAAP and IFRS and pension expense is calculated differently under the two (expected return is used to calculate the pension expense under GAAP).
Here is what’s from the book page 184:
U.S. GAAP Component
Current service costs Past service costs Interest expense on pension obligation Expected return on plan assets Actuarial gains and losses including differences between the actual and expected returns on plan assets wouldn’t exp return be canceled out based on this?
S2000, do you have any idea?
Poorly written question, but the answer is correct. Read what cgy wrote above…
I had the same question, what you have copied from page-184 is the total periodic pension cost that is distributed between Income stmt & OCI.
The feedback i got was that the CFA mock was not clear on this question. If you look at EOC questions, they are very clear in asking question on Total PPC vs. Total PPC that gets recognised on P&L or OCI
Also, i have seen this happening before - pls use the formula as given in the EOC and footnote of the curriculum. you will not regret it:)
What’s the formla given in the EOC?
For the Total PPC, refer to Page-198 footnote and do EOC #6.
Except that it doesn’t: positive funded status means that it’s a _ net asset _.
I think so.
Start with what I wrote here: http://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91332550.
Change in funded status depends on the _ actual _ return on plan assets, not on the expected return.
Period.