The Collie Company had an actual return of 7% on its pension plan assets in 2010, followed by an actual return of 10% in 2011. The expected or planned return for both years was 9%. Collie Company was correct in using the 9% rate to compute the reduction in pension expense for both years. True or False?

Correct Answer: True

SFAS No. 87 permits firms to use the planned return instead of the actual return when computing net pension expense. This helps firms avoid earnings volatility.