Question

How can you tell when a rate of return on plan assets is reasonable? What do you have to compare the rate of return to?

Answer 1

Question: How can you tell when a rate of return on plan assets is reasonable? What do you have to compare the rate of return to?

Answer: The question is of very much personal and the answer may be different from person to person. Reasonable is a comparative term. The assessment of reasonability will vary for each individiual and organisation as well. Everybody expect better return on its investment. But as a general principle, we can assess the criteria to decide about reasonable return. For answering, we need to consider the past history of returns, investment enviornment scenerio, performance of plan assets, general scenerio of rate of return and last but not the least one important is risk bearing capacity of person or organisation. There can be three Investment Plans, one is risky, another is of no risk, third one is mixed plan. Equities are taken generally as risky Investments, Debts have secured return plans with less risk, a mix of Investment in shares and Debt is hybrid. So one can reasonably satisfied with his own decision , to make an investment decisions.

Answer to the second question is also of analysis with the datas available which includes past historical datas, comparison between two or more organisations, other investment returns whether giving less or higher returns with risk bearings. We need to analyse based on Net Returns as tax implications differ from plan to plan. Plus the Inflation rates have to be considered while arriving at right decisions. We must also consider the value addition in Investment, besides the regular returns on year to year basis.