An actuarial gain or loss refers to the changes in the value of a company’s pension or other post-employment benefit obligations that arise from differences between the expected and actual outcomes. These differences can stem from a variety of factors, including changes in demographic assumptions (such as mortality rates), the performance of plan assets, or alterations in financial assumptions (such as discount rates).
In finance, actuarial gains and losses are crucial for organizations managing employee benefits, as they directly influence the balance sheet and income statement. An actuarial gain occurs when the actual outcomes are more favorable than expected, leading to a decrease in the liability. Conversely, an actuarial loss happens when actual outcomes are less favorable, resulting in an increase in the liability.
Accurately accounting for these gains and losses helps businesses provide a clearer picture of their financial health, ensuring they meet regulatory requirements and making informed decisions regarding funding and payouts related to employee benefits.
