Question

Facebook, Inc. sponsors a defined-benefit pension plan. The following data relates to the operation of the plan for the year 2020.

Service cost $   230,000

Contributions to the plan                                          220,000

Actual return on plan assets                                      180,000

Projected benefit obligation (beginning of year)   2,400,000

Fair value of plan assets (beginning of year)        1,600,000

The expected return on plan assets and the settlement rate were both 10%. At the beginning of 2020, the pension plan is:

a) Underfunded by $870,000

b) Overfunded by $800,000

c) Underfunded by $800,000

d) Fully funded

Answer 1

The Benefit Pension plan is underfunded by $ 870000

The answer to the problem in option A

Calculation

Fair value of plan assets (beginning of year)        1,600,000

+ Current Year Contribution 220000

+ Actual return on plan assets 180,000

- Service cost 230,000

- Settlement Cost 240000 (10% of 2400000)

Total 1,530,000

Comparing it with the Projected benefit obligation (beginning of year)   2,400,000

Deficit of $870000 option A