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To: Earlie who wrote (173705)	6/18/2002 10:18:41 PM
From: Alias Shrugged	Read Replies (2) of 436258

Post 2 ============================================ One component of pension expense is the Expected Return on Plan Assets. Expense is not determined using ACTUAL asset return, but the expected increase in assets. Any difference between assumed growth and actual growth is amortized over some future period. Expected and Actual Asset returns for IBM's Plan are shown below. The Expected Return on Assets is equal to the Expected Rate of Return on Assets (in IBM's case, they used 10% for fiscal 2001) multiplied by the Market-Related Asset Value (MRAV)(adjusting for anticipated cashflow during the year). The MRAV can be market value, but the Accounting Statement (#87) allows and IBM elected to use a smoothed value. MRAV is basically market value of the assets, less recent asset gains or losses which are still being phased into the MRAV. For instance, while large asset returns immediately pump up the market value, the large gains would be gradually phased into the MRAV over 5 years. The intent is to smooth out some of the volatility in the figure used to calculate expected asset returns. The MRAV and MV for IBM are shown below: Negative numbers indicate asset losses. Asset Expected Actual Gain Beginning of Year Year Return Return (Loss) MRAV MV ----------------------------------------------------- 1994 2499 (327) (2826) 27055 28607 1995 2542 5500 2958 28110 26780 1996 2701 4849 2148 30073 31209 1997 2907 6193 3286 31763 34281 1998 3123 5240 2117 33939 38475 1999 3463 6397 2934 36477 41593 2000 3902 1395 (2507) 40223 45584 2001 4202 (2405) (6607) 43335 44594 IBM had some good returns 1995 through 1999. The MRAV started to seriously lag the MV as these great gains were being slowly phased in. The gap between MRAV and MV peaked in 2000. 2001 Was not a good year for investments. (-ggg-)

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