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Pension costs disclosure

SbSSbS L2 candidatePosts: 11 Associate

In pension costs disclosure we have a remeasurement component which includes net return on plan assets and actuarial gains and losses.

Under IFRS,

Net return on plan assets = Actual Return - (Plan assets * interest rate)

Under US GAAP,

Net return on plan assets = Actual Return - (Plan assets * expected return)

What is the logic behind these formulas ?


  • as you said, remeasurement (as in pension benefits obligations) is composed of:

    IFRS :

    i)Actuarial Gain/Loss : Actuarial assumptions used to assume future employees benefits ( salary increase, expected life etc)

    ii) Actual return on the plan assets measured as( Actual return (given) - Beginning plan assets * Interest rate)

    This goes directly to OCI and not amortized

    US GAAP:

    i) Actuarial Gain/Loss

    ii) Actual return on plan assets measured as (Actual return( given) - Beginning plan assets * Expected rate of return)

    This goes to OCI and to be amortized to Income Statement through corridor approach

    as to WHY these formulae differ for IFRS and US GAAP for net return on planned assets is out of the scope of the cfa curriculum... but if you must know:

    the relevant IFRS rule, i.e. IAS 19 limits income on plan assets to interest income; whereas US GAAP reflects actual returns

    Under IAS 19, the net interest expense consists of interest income on plan assets, interest cost on the defined benefit obligation, and interest on the effect of any asset ceiling. Net interest expense is computed based on the benefit obligation’s discount rate. Differences between the net interest and actual returns are included in remeasurement gains and losses, which are recognized in OCI and are not recycled to net income in subsequent periods but may be transferred within equity (e.g. from OCI into retained earnings).

    Unlike IFRS Standards, under US GAAP the expected return on plan assets is based on the fair value of plan assets or calculated value and differences between expected and actual returns are recognized immediately in net income or initially in OCI and subsequently amortized to net income.

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