Choose the correct statement about the two sides of a defined benefit pension plan. an investor...
Choose the correct statement about the two sides of a defined benefit pension plan.
| an investor need only know the amount of PBO to gain a full understanding of the financial health of defined benefit pension plans |
| when PBO increases, plan (fund) assets decrease |
| when plan (fund) assets increase, PBO decreases |
| they convey the same information about the plan |
| they are separate and do not affect each other |
Homework Answers
answer is option E
they are separate and do not affect each other
The two sides of a defined benefit pension plan: PBO and plan (fund) assets
PBO is a future liabilities created by employee service.
plan assets are used to pay for retiree benefits.
PBO is calculated by (adding) service cost, (adding) interest cost, (adding/deducting) Acturial gain/loss, (adding/d(aeducting) plan admendment gain/loss, (deducting) benefits paid.
Plan assets are calculated by (adding) return on plan assets, (adding) employer contributions (deducting) benefits paid.
in this way they both are calculated in the different way using different components and thus do not affect each other.
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