Question

Consider the following three statements and decide whether they are true or false:

I. Defined contribution plans specify the amount that the employer puts into the plan for the benefit of the employee.
II. Most of the factors used to determine specific expense accruals for defined benefit pension plans are based upon actuarial assumptions and present values.
III. A defined benefit pension plan can subject a company to significant potential liability.

Select one:

a. All of them are false.

b. Two of them are false.

c. One of them is false.

d. All of them are true.

Answer 1

C.One of them is false

1 statement is wrong. Defined contribution plans specify the amount that the employer or employee or both puts into the plan for the benefit of the employee.

2&3 are True. Actuarial assumptions means the statistical and mathematical model used to evaluate risk and probabilities..when the pension earner retires the pension value can be divided on the basis of present value in defined benefit pension plan. Factors include interest and earning rates,employee turnover,future salaries.The estimtion of liabilities of a pension plan is difficult and complicated,leads to errors.

Liability is the difference between total amount due to retiring persons and actual amount of money in the hands of company.