Economic Pension Expense

Till now our discussion regarding defined benefit pension reporting has focused on the accounting rules and techniques that company management can apply to pension plan assumptions to window dress financial statements.

When evaluating a company, the financial analyst seeks to determine the true economic positions of the company.  For companies with defined benefit pension plans, the analyst will need to calculate the economic pension expense.

Economic Pension Expense = the sum of changes to the DBO netted against the actual return on plan assets

Alternatively:

Economic Pension Expense = Δ Funded Status – Company Contributions