Question

If employee life expectancy increases during the current year below last year's rates, what happens to Pension Liability and Pension expense?

How can a company avoid showing an increase in pension liability?

Answer 1

The situation explained in the question is pension crisis where the laibility of the organisation increases as there is an increase in the life expectancy of the employee.

Pension liability is the amount due to be paid to the retirees by the government or any private organisation for meeting future pension payments

Pension liability and the pension expense increases as the life expectancy of the employee increases

The company can avoid the increase in pension liabilities by making major capital restructuring decisions and also some transfers are being proposed to avoid full pension liability.Also the company can invest the pension funds on aquiring equity the return from which will reduce the pension liability.The company can also apportion some liability as pension expense which will not be shown as a liability