Page 252 - Group Insurance and Retirement Benefit IC 83 E- Book

Employee Benefits 201

108. The expected returnon plan assets is based on market expectations,
at the beginning of the period, for returns over the entire life of the related
obligation. The expected return on plan assets reflects changes in the fair
value of plan assets held during the period as a result of actual
contributions paid into the fund and actual benefits paid out of the fund.

109. In determining the expected and actual return on plan assets, an
enterprise deducts expected administration costs, other than those
included in the actuarial assumptions used to measure the obligation.

Example Illustrating Paragraph 108

At 1 January 20X1, the fair value of plan assets was Rs. 10,000.
On 30 June 20X1, the plan paid benefits of Rs. 1,900 and received
contributions of Rs. 4,900. At 31 December 20X1, the fair value
of plan assets was Rs. 15,000 and the present value of the defined
benefit obligation was Rs. 14,792. Actuarial losses on the
obligation for 20X1 were Rs. 60.

At 1 January 20X1, the reporting enterprise made the following
estimates, based on market prices at that date:
%
Interest and dividend income, after tax payable by the
fund 9.25
Realised and unrealised gains on plan assets (after tax) 2.00
Administration costs (1.00)
Expected rate of return 10.25

For 20X1, the expected and actual return on plan assets are as
follows:
(Amount in Rs.)
Return on Rs. 10,000 held for 12 months at 10.25% 1,025
Return on Rs. 3,000 held for six months at 5% (equivalent
to 10.25% annually, compounded every six months) 150
Expected return on plan assets for 20X1 1,175
Fair value of plan assets at 31 December 20X1 15,000
Less fair value of plan assets at 1 January 20X1 (10,000)
Less contributions received (4,900)
Add benefits paid 1,900
Actual return on plan assets 2,000