Question

9. A company’s annual pension expense calculation for its defined-benefit plan includes: A) the cost of employees’ service for years prior to their being employed by the company. B) the cost of employees’ service performed during the year. C) a deduction for the cash that the company actually sets aside to fund the plan. D) All of the above are true. E) None of the above is true.

Answer 1

Option D) All of the above are true is the correct option

Defined benefit plan:

- It is a specific retirement benefit plan through which the employee gets a guaranteed retirement benefit from the employer.

- Employees' control over the plan is very little. Responsibility of investing and distribution tied to the employer.

Pension expense components:

(+) Service Costs

(+) Interest on Liability

(-) Estimated Return on Plan Assets

(+) Amortization of Unamortized Prior Service Costs

(+/-) Gain or Loss

(+) Pension Expense

(-) Cash Payments

(+/-) Other Comprehensive Income/ Loss