Question

All of the following increase pension expenses except

a. service cost
b. interest on the liability
c. amortization of prior service cost
d. actual return on plan assets

Answer 1

All the factors listed, except for the actual return on plan assets, generally increase pension expenses. Positive actual returns on pension plan assets can reduce overall pension expenses by offsetting other costs.

Step-by-step explanation:

The question pertains to factors that affect pension expenses. Pension expenses can be influenced by several components which are dictated by accounting standards. These components include:

• Service cost, which is the present value of benefits earned by employees during the current year.
• Interest on the liability, which is the interest on the projected benefit obligation.
• Amortization of prior service cost, which occurs when a pension plan amendment increases the plan's obligation for employee service in prior years.

The one factor listed that does not increase pension expenses is the d. actual return on plan assets. In fact, if the actual return is positive, it can reduce the pension expenses because the income generated by the plan assets offsets part of the costs.