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.