Question

Which of the following does not cause an increase in the pension expense for a defined benefit plan?

Group of answer choices

Recognized prior service cost amortization

Service cost

Expected return on pension plan assets

Interest cost

Answer 1

Ans - EXPECTED RETURN ON PENSION PLAN ASSETS (Option 3rd)

(Option 1st) Recognized prior service cost amortization :
The plan issued by employer may contain increase benefits which are related to prior services rendered by employee as a result of which the cost of such benefits are amortized for the periods in which the employee is expected to receive benefits. This results in an increase in Pension expense for a defined benefit plan, Thus it cannot be OPTION 1st.

(Option 2nd) Service cost:
This is the present value of benefits related to services rendered by employees during current period Such costs are also causing an increament in Pension expense as it includes benefit payments that will be derived based on estimation of future compensation levels of employees. Thus it cannot be OPTION 2nd as well

(Option 4th) Interest cost
This is not a cost item. It is a financial item which reflects the interest on projected benefit obligation and is also a part of Defined pension costs. So it cannot be OPTION 4th as well

Hence, EXPECTED RETURN ON PENSION PLAN ASSETS is the correct option which does not cause an increase in Pension expense of Defined Benefit Plan