How will pension expense in the current year change if the actual rate of return increases?...

How will pension expense in the current year change if the actual rate of return increases?
How will pension expense in the current year change if the discount rate increases?

Expert Solution

Pension expense is the cost associated with pension plans that are reported on companies Income statement.

Relation between Pension expense and Actual rate of return

The pension expense and actual rate of return of plan asset held by the company for its pension expense is Inversely proportional

An increase in the actual rate of return of the plan asset held by the company for its pension fund reduces the companies overall pension expense.

Relation between Pension expense and Discount rate

Discount Rate for Pension plans - Present value of contribution to be made in order to attain future pension obligations.The Discount rate is determined mainly on the basis of the expected rate of return of the pension plan asset.

If the discount rate is increased the pension will become less expensive since the pension fund will earn more money over the years which results in less contribution towards the pension plan which is to be paid out after n number of years.

An increase in the discount rate reduces the pension expenses of the organization for the current year.

ekkarill92 answered 2 years ago

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