The return on plan assets provides additional funds to satisfy the pension and, therefore, is subtracted from the pension cost (service, interest, and other components of pension cost) to arrive at the net periodic pension cost (FASB ASC 715-30-35-18-28).
The return on plan assets component is calculated by applying an expected long-term rate of return (rather than actual return) to a market-related asset value. Applying an expected return rate removes the effects of short-term gains and losses on long-term investments and lessens the volatility in pension cost.
Any difference between the fair value of the assets and the value of assets based on their expected return becomes a part of the gain or loss component of pension cost. The recognition of the difference in the expected return on plan assets and the actual return on plan assets (a gain or loss) should be recognized either in net pension cost and as part of comprehensive income in the period it arises depending on the company’s policy for recognition of gains and losses (FASB ASC 715-30-35-23).
FASC ASC 715 provides management with a choice of recognizing the actual return on plan assets for the period in the net periodic cost or the expected return plus/minus the amortization of any loss/gain in accumulated other comprehensive income.