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Lesson details
- Estimated study time
- 135 min
Learning objectives (3)
The trustee reports $16.15 million of ending plan assets while the sponsor's cash ledger shows a $1.2 million contribution. Assets increased $1.15 million from the opening balance, but none of those three amounts is automatically the period's investment return.
Reconcile fair value from controlled cash flows
opening fair value of plan assets
+ actual return
+ employer and participant contributions
+ assets acquired
- benefits paid
- settlements and expenses paid from the trust
= ending fair value of plan assets
Cedar Trail's trustee-supported schedule is:
| Plan-asset movement | Increase / (decrease) |
|---|---|
| Opening fair value | $15,000,000 |
| Actual return | 1,050,000 |
| Employer contribution | 1,200,000 |
| Benefits paid | (1,100,000) |
| Ending fair value | $16,150,000 |
The $1.05 million actual return is recoverable from the controlled equation: $16.15 million ending - $15.0 million opening - $1.2 million contribution + $1.1 million benefits.
That derivation checks completeness only after all cash flows are proved. An unrecorded trustee fee or transfer would masquerade as investment return.
Separate actual and expected return
The periodic-cost file uses a supplied expected return of $900,000. The asset rollforward uses actual return of $1,050,000. The $150,000 favorable difference participates in the asset gain-and-loss bridge:
| Return rail | Amount | Destination |
|---|---|---|
| Actual return | $1,050,000 | Plan-asset rollforward |
| Expected return | 900,000 | Reduction of net periodic pension cost |
| Actual above expected | 150,000 gain | OCI/AOCI gain-and-loss layer |
Do not put both actual and expected return in expense. Do not replace expected return with actual return merely to make periodic cost match the market. The difference is the reason the gain-and-loss rail exists.
Keep fair value and market-related value distinct
Ending funded status uses the fair value of plan assets. A supported market-related value may be used under the entity's policy for expected return or gain-and-loss amortization. The policy should identify the averaging or smoothing convention, period, consistency, and how the measure reconciles to fair value.
“Smoothed assets” are not a permission to defer an inconvenient fair-value loss on the balance sheet. They are a specific input to specific calculations.
Inspect the asset evidence
Tie the trustee total to:
- custodian positions and cash;
- investment manager reports;
- purchases, sales, income, fees, securities lending, and derivatives;
- plan contributions received and benefit payments released;
- fair-value hierarchy and valuation techniques;
- investments measured at net asset value when applicable;
- employer securities and other concentrations; and
- assets transferred in a settlement, acquisition, or plan merger.
The calculation workbook cannot prove existence, title, restrictions, or valuation. Those remain audit, trustee, valuation, and legal questions.
Enforce the benefit-payment symmetry
The $1.1 million benefits paid should reduce both PBO and plan assets. The shared amount is a powerful control:
PBO benefit decrease = plan-asset benefit outflow
Differences can be legitimate, for example, direct employer payments, timing, administrative expenses, insurer settlements, or classification differences, but they require a named explanation and evidence. A silent plug destroys both rollforwards.
The asset file closes when fair value reconciles, actual and expected returns remain separate, benefit payments match the obligation schedule, and every restricted asset movement traces to trustee evidence.