Definition:
Actual return on plan assets is the actual investment return earned on a company’s pension plan assets during a specific period. It’s calculated by dividing the net investment income (income earned from investments minus investment expenses) by the beginning balance of the plan assets.
Formula:
Actual Return on Plan Assets = Net Investment Income / Beginning Balance of Plan Assets
Key points about actual return on plan assets:
- Investment performance: It measures the performance of the investments held by the pension plan.
- Pension plan funding: It’s a key factor in determining the funding status of a pension plan.
- Risk management: Understanding the actual return on plan assets is important for managing the risks associated with pension plan investments.
Why is actual return on plan assets important?
- Pension plan funding: A high actual return on plan assets can help to improve the funding status of a pension plan.
- Risk management: Understanding the actual return on plan assets can help companies manage the risks associated with pension plan investments.
- Financial reporting: Actual return on plan assets is reported on the company’s financial statements.
In essence, actual return on plan assets is a crucial metric for assessing the performance of a pension plan’s investments and managing its funding status.
