Definition:
Actuarial gains/losses are changes in the value of a pension plan’s assets or liabilities that are not due to the plan’s investment returns. They arise from differences between the actual experience of the plan (such as mortality rates, turnover rates, and salary increases) and the assumptions used to calculate the plan’s liabilities.
Types of actuarial gains/losses:
- Experience gains/losses: Differences between actual experience (e.g., mortality rates, turnover rates) and the assumptions used in the plan’s actuarial calculations.
- Economic gains/losses: Changes in the value of the plan’s assets or liabilities due to changes in interest rates or other economic factors.
Why are actuarial gains/losses important?
- Pension plan funding: Actuarial gains/losses can have a significant impact on a pension plan’s funding status.
- Financial reporting: Actuarial gains/losses are reported on a company’s financial statements.
- Risk management: Understanding actuarial gains/losses is important for managing the risks associated with pension plans.
It’s important for companies to regularly review their pension plans to assess actuarial gains/losses and make necessary adjustments to ensure the plan’s long-term sustainability.
