Return on Assets
- Any difference between the actual fair value of the assets and the value of assets based on their expected return becomes part of the unamortized gain or loss component of pension cost (discussed later).
- That is, if the actual return on assets is greater or less than the expected return, the difference will be smoothed by amortization over a number of periods.
- The market-related values of plan assets may be either current “fair” value or a value determined by any “rational or systematic” approach that recognizes changes in “fair” value over not more than five years.
- Again has the effect of smoothing pension expense.