The term pension expense refers to the costs associated with pension plans that are reported on the company's income statement. Expenses associated with defined contribution plans are equal to the contribution made by the company in the current period. The pension expense associated with defined benefits plans include service and interest cost, the return on the plan's assets, as well as the amortization of prior service costs and actuarial gains or losses.
Net Pension Expense = Interest Cost + Service Cost - Expected Return on Plan Assets + Amortization of Prior Service Costs + or - Amortization of Actuarial Gains or Losses
Companies will provide employees with a pension plan as part of a larger array of employment benefits. Pension plans are structured by companies to provide a periodic and reliable source of income when the employee reaches the plan's normal retirement age.
The FASB Statement of Financial Accounting Standards No. 87 requires firms to measure and disclose pension obligations as well as the performance and financial condition of their plans at the end of each accounting period. Pension expenses associated with defined contribution plans are simply equal to the contribution made by the company to the plan in the current accounting period.
The calculations involved in determining a company's obligation under a defined benefit plan are complex, and require the skill of an actuarial to perform. Generally, pension plan expenses would include:
pension plan, defined benefit plan, defined contribution plan, pension obligation, accumulated benefit obligation, vested benefit obligation, projected benefit obligation, service cost, pension interest cost, amortization of prior service cost, actuarial gains and losses