101 Concepts for the Level I Exam

Essential Concept 24: Impact of Key DB Pension Assumptions

Assumption Impact of Assumption on Balance Sheet Impact of Assumption
on Periodic Cost
Higher discount rate. Lower obligation. Periodic pension costs will typically be lower because of lower opening obligation and lower service costs.
Higher rate of compensation increase. Higher obligation. Higher service costs.
Higher expected return on plan assets. No effect, because fair value of plan assets is used on balance sheet. Not applicable for IFRS.
Lower periodic pension expense under US GAAP.