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Chapter 20: Q7Q. (page 1161)

Name three approaches to measuring benefit obligations from a pension plan and explain how they differ.

Short Answer

Expert verified

Wind-up is a term used when an organization terminates the pension plan contract of an employee. The main reason for wind-up is due to bankruptcy of the firm.

Step by step solution

01

The three approaches that are responsible for measuring the benefit obligations are

  1. Vested benefit obligation
  2. Accumulated benefit obligation
  3. Defined benefit obligation
02

Difference between the approaches

Vested benefit obligation

Accumulated benefit obligation

Defined benefit obligation

This type of measure considers the current salary levels and the vested benefits of an employee.

This benefit obligation calculates the total present value of the pension benefits before the retirement of an employee using the pension benefit formula.

This type of benefit obligation combines vested and non-vested services requiring the employee's future salaries.

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Most popular questions from this chapter

What is the role of an actuary relative to pension plans? What are actuarial assumptions?

Towson Company has experienced tough competition for its talented workforce, leading it to enhance the pension benefits provided to employees. As a result, Towson amended its pension plan on January 1, 2017, and granted past service costs of \(250,000. Current service cost for 2017 is \)52,000. Interest expense is \(18,000, and interest revenue is \)5,000. Actual return on assets in 2017 is \(3,000. What is Towson’s pension expense for 2017? (a) \)65,000. (c) \(317,000. (b) \)302,000. (d) $315,000.

Describe the reporting of pension plans for a company with multiple plans, some of which are underfunded and some of which are overfunded.

Differentiate between a defined contribution pension plan and a defined benefit pension plan. Explain how the employer’s obligation differs between the two types of plans.

Englehart Co. provides the following information about its postretirement benefit plan for the year 2017. Service cost $ 90,000 Prior service cost amortization 3,000 Contribution to the plan 56,000 Actual and expected return on plan assets 62,000 Benefits paid 40,000 Plan assets at January 1, 2017 710,000 Accumulated postretirement benefit obligation at January 1, 2017 760,000 Accumulated OCI (PSC) at January 1, 2017 100,000 Dr. Discount rate 9% Instructions Compute the postretirement benefit expense for 2017.
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