CFA Practice Question

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CFA Practice Question

Which one of the following is not a component of pension expense?
A. Expected return on plan assets
B. Amortization of projected benefit obligations
C. Interest costs on benefit obligations
Explanation: Amortization of prior service costs is also a component.

User Contributed Comments 9

User Comment
robbe1 Actual return on plan assets actually aren't part of the pension expense. Expexted returns are, and under specific circumstances, there can be an amortization of gains or losses.
danlan2 There are six elements for pension expense:
1. Service cost
2. Interest cost
3. Return on plan assets
4. Amortization of unrecognized prior service cost
5. Amortization and deferral of gain or loss
6. Amortization of the transition liability or asset
From the note, actual return on plan asset is part of the penseion expense, robbe1 is wrong.
Grimey No, robbe1 was not wrong. He is correct that "expected" is the key word. Actual return on plan assets is used to calculate the Adjusted Pension Expense. Actual return is not a component of traditional pension expense.
Tobi3 Actual return sometimes does appear in the calculation of pension expense, but it is always in combination with the unexpected gain or loss (unless actual return equals the expected return). The total of the actual return and the unexpected gain or loss is the expected return.
bmeisner Pension expense as opposed to net pension expense uses actual returns as opposed to expected returns and smoothing adjustments.
HenryQ Pension expense and net pension expense should be the same thing. Almost no company uses actual return to calculate PBO.
Nightsurfer Wouldn't amortization of the PBO be equal to interest cost?
business No amotisation is not interest. Amortisation is spreading the obligation over a period eg when paying back a bank loan you pay amortised loan capital plus interest = installment.
gill15 I'm an actuary and i dont know any of this. All I know how to do is use Vlookup in excel and they pay me 6 figures.

Im not even joking...
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