Actuarial Gain Or Loss

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DEFINITION

Gain or loss arising from the difference between estimates and actual experience in a company's pension plan. Actuarial gains and losses are used when accounting for pension plans because of the need to make assumptions about the future rate of salary increases, the length of employee tenure, an appropriate discount rate for the plan obligations and the expected rate of return on plan assets.

INVESTOPEDIA EXPLAINS

Under old accounting rules, recognition of actuarial gains and losses was delayed and smoothed over time, so a plan's true funded status was rarely reported on a company's balance sheet.

In December 2006, the Financial Accounting Standards Board (FASB) issued SFAS 158, which stated that a plan's funded status must be recognized on the balance sheet, and actuarial gains and losses in a period should flow directly to comprehensive income in shareholder's equity. This move has made the true economic position of pension plans more visible.




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