Under a defined benefit pension plan,
A)actuarial computations are unnecessary.
B)accounting for annual pension expense is simple.
C)retirement payments are based on the amount accumulated in the pension fund.
D)the employer guarantees the employees certain benefits upon retirement.

Question

Quizplus · Accepted Answer

Under a defined benefit pension plan, the employer guarantees the employees a certain level of retirement benefits, typically based on a combination of factors such as years of service and final salary. This obligation creates significant challenges for companies in terms of managing the plan's funding and financial reporting, and typically requires actuarial computations to estimate the necessary contributions and related expenses. Accounting for annual pension expense under such plans can be complex, as it involves estimating the expected long-term rate of return on plan assets, as well as various actuarial assumptions about future employee turnover, mortality rates, and other factors. The amount of retirement payments is based on the plan's funding level and actuarial assumptions, rather than the amount accumulated in the pension fund.

Under a Defined Benefit Pension Plan