How is the ending fair value of plan assets calculated?

The calculation of the ending fair value of plan assets reflects the changes over a reporting period due to various factors. To arrive at the correct methodology, the process involves starting with the beginning fair value of the plan assets, then adjusting that figure by accounting for contributions made during the period, the actual returns generated by the assets, and the benefit payments that have been disbursed to retirees or beneficiaries.

Starting with the beginning fair value provides a foundation. Adding contributions is necessary because those new funds increase the total asset value available to the plan. Actual returns, whether they are gains or losses from investments, further adjust the asset value, as they represent the performance of the invested funds. Finally, subtracting benefit payments accounts for the distributions made to beneficiaries, which reduces the total value of the assets held by the plan.

This comprehensive approach correctly captures all relevant inflows and outflows, leading to an accurate assessment of the ending fair value of plan assets. Other options do not accurately incorporate all of these elements or may include incorrect terms, making them unsuitable for this calculation.