Quiz 19: Budgeting Pension Costs

Business

Plan termination Plan termination should be event which is identifiable or else the details on termination would be difficult to assess. Plant termination can take place either voluntary or involuntary. In case of voluntary termination, termination would not be proceeded if there is violation of any terms and conditions of existing collective bargaining agreement. Voluntary termination can take place in either standard way or distress termination. Over-funded defined benefit pension plan is when the value of plan assets reported in asset section is higher than net accumulated obligation payable. The issue with termination of plan which is over-funded is that it would be difficult to determine the allocation process for assets. The assets are in excess of liabilities and thus the excess assets would be provided to employer who contributed to the assets. However there be various taxes levied on these distribution. The cost of termination for employer would increase.

Advanced funding refers to an approach in funding of retirement plan where an employer keeps funds aside in a regular systematic manner so as to provide increased retirement income to the employees. This funding is adopted by employer during the working life of the employee and continued only until their retirement. This method usually if adopted and carried out on a continuous basis results in increase of the accumulated fund in the plan than the aggregate single sum needed to be provided to the workers as benefit who already have retired. This excess amount in the plan actually reflects the advanced funding benefit that has to be credited to active employees who have not retired yet. The provision required for advanced funding approach is to have the pension plan qualified under Internal Revenue Service (IRS) so as to adopt the method as because the tax advantages under a qualified plan would only attract employer to make advanced funding. Thus, this method of advance funding is a method or approach that can be adopted by employer in contributing towards pension plan which makes funds in excess of requirement available.

Plan termination Plan termination should be event which is identifiable or else the details on termination would be difficult to assess. Plant termination can take place either voluntary or involuntary. In case of voluntary termination, termination would not be proceeded if there is violation of any terms and conditions of existing collective bargaining agreement. Voluntary termination can take place in either standard way or distress termination. Over-funded defined benefit pension plan is when the value of plan assets reported in asset section is higher than net accumulated obligation payable. The issue with termination of plan which is over-funded is that it would be difficult to determine the allocation process for assets. The assets are in excess of liabilities and thus the excess assets would be provided to employer who contributed to the assets. However there be various taxes levied on these distribution. The cost of termination for employer would increase.

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