Analyzing and Interpreting Pension Disclosures

Dow DuPonts 10-K report has the following disclosures related to its retirement plans.

Required

a. How much pension expense does DowDuPont report in its 2018 income statement? Would 2018 pension expense have been higher or lower if DowDuPont had not changed the Rate of compensation increase from 2017 to 2018?

b. DowDuPont reports a $2,846 million expected return on pension plan assets as an offset to 2018 pension expense. Estimate what the expected return would have been had DowDuPont not changed the assumption on the expected return in 2018. What is DowDuPonts actual gain or loss realized on its 2018 pension plan assets? What is the purpose of using this expected return instead of the actual gain or loss (return)?

December 31, 2018 Obligations and Funded Status ($ millions) Change in projected benefit obligations Benefit obligations at beginning of year Service cost Interest cost Plan participants' contributions. Actuarial changes in assumptions and experience Benefits paid. Plan amendments. Acquisitions/divestitures/other Effect of foreign exchange rates. Benefit obligation at end of year. $ 57,401 651 1,638 29 (2,832) (3,223) 34 (57) (627) $53,014 continued continued from previous page December 31, 2018 Obligations and Funded Status ($ millions) Change in plan assets Fair value of plan assets at beginning of year Actual return on plan assets. Employer contributions. Plan participants' contributions. Benefits paid...... Acquisitions/divestitures/other Effect of foreign exchange rates. Fair value of plan assets at end of year Funded status U.S. plan with plan assets Non-U.S. plans with plan assets. All other plans..... Funded status at end of year. $ 43,685 (1,524) 2,964 29 (3,223) (7) (462) $ 41,462 $ (6,956) (2,751) (1,845) $(11,552) December 31, 2018 Components of Net Periodic Benefit Cost ($ millions) Net periodic benefit cost Service cost Interest cost Expected return on plan assets Amortization of prior service credit. Amortization of unrecognized (gain) loss Curtailment/settlement/other ... Net periodic benefit costs-Total $ 651 1,638 (2,846) (24) 649 (10) $ 58 Weighted-Average Assumptions used to Determine Net Periodic Benefit Cost for Years Ended December 31 2018 2017 Discount rate ...... Expected return on plan assets Rate of compensation increase 3.80% 6.68% 3.95% 3.26% 6.94% 3.88% The following benefit payments, which reflect future service, as appropriate, are expected to be paid: $ millions Pension Benefits 2019 $ 3,197 2020 3,172 2021 3,182 2022 3,198 2023 3,219 2024-2028 16,078 Total ... $32,046 December 31, 2018 Obligations and Funded Status ($ millions) Change in projected benefit obligations Benefit obligations at beginning of year Service cost Interest cost Plan participants' contributions. Actuarial changes in assumptions and experience Benefits paid. Plan amendments. Acquisitions/divestitures/other Effect of foreign exchange rates. Benefit obligation at end of year. $ 57,401 651 1,638 29 (2,832) (3,223) 34 (57) (627) $53,014 continued continued from previous page December 31, 2018 Obligations and Funded Status ($ millions) Change in plan assets Fair value of plan assets at beginning of year Actual return on plan assets. Employer contributions. Plan participants' contributions. Benefits paid...... Acquisitions/divestitures/other Effect of foreign exchange rates. Fair value of plan assets at end of year Funded status U.S. plan with plan assets Non-U.S. plans with plan assets. All other plans..... Funded status at end of year. $ 43,685 (1,524) 2,964 29 (3,223) (7) (462) $ 41,462 $ (6,956) (2,751) (1,845) $(11,552) December 31, 2018 Components of Net Periodic Benefit Cost ($ millions) Net periodic benefit cost Service cost Interest cost Expected return on plan assets Amortization of prior service credit. Amortization of unrecognized (gain) loss Curtailment/settlement/other ... Net periodic benefit costs-Total $ 651 1,638 (2,846) (24) 649 (10) $ 58 Weighted-Average Assumptions used to Determine Net Periodic Benefit Cost for Years Ended December 31 2018 2017 Discount rate ...... Expected return on plan assets Rate of compensation increase 3.80% 6.68% 3.95% 3.26% 6.94% 3.88% The following benefit payments, which reflect future service, as appropriate, are expected to be paid: $ millions Pension Benefits 2019 $ 3,197 2020 3,172 2021 3,182 2022 3,198 2023 3,219 2024-2028 16,078 Total ... $32,046