ch.17

What is a pension plan best described as?

Deferred compensation for employee services.

Which of the following is TRUE about defined contribution plans?

Employee bears investment risk.

In a defined contribution plan, pension expense equals?

Annual contribution.

Which plan promises a fixed retirement benefit?

Defined benefit.

Which factor is NOT used in a defined benefit formula?

Interest rate.

Who bears risk in a defined benefit plan?

Employer.

Which is the MOST complex plan to account for?

Defined benefit.

Why are companies shifting away from defined benefit plans?

High risk and regulation.

Pension expense includes all EXCEPT?

Dividends.

Service cost represents?

Benefits earned during the year.

Interest cost is calculated as?

Discount rate × PBO (beginning).

Expected return on plan assets?

Decreases expense.

Prior service cost arises when?

Plan is amended.

Gains and losses occur when?

Estimates differ from actual.

Which is the MOST relevant pension obligation measure?

PBO.

ABO uses?

Current salaries.

VBO represents?

Guaranteed benefits.

Which relationship is correct?

VBO < ABO < PBO.

PBO includes?

Future salary projections.

Which increases PBO?

Service cost.

Which decreases PBO?

Benefit payments.

Actuaries are responsible for?

Estimating pension obligations.

Which is NOT an uncertainty in DB plans?

Fixed contributions.

Pension expense is affected by?

Both assets and liabilities.

On the balance sheet, companies report?

Net pension asset/liability.

Which plan type has simplest accounting?

Defined contribution.

If actual return > expected return?

Gain occurs.

Which BEST describes service cost?

Growth due to work performed.

A company contributes 5% of salary. This is?

Defined contribution.

Pension benefits are typically paid?

At retirement.

Does pension accounting use accrual accounting?

True.

Defined contribution plans guarantee retirement benefits?

False.

In DC plans, employers bear investment risk?

False.

Defined benefit plans require actuarial estimates?

True.

Pension expense includes service cost?

True.

Interest cost decreases the pension obligation?

False.

Expected return on assets reduces pension expense?

True.

ABO includes future salary projections?

False.

PBO is used for financial reporting?

True.

VBO includes only vested benefits?

True.

Gains and losses come from estimate changes?

True.

Service cost increases PBO?

True.

Benefit payments increase PBO?

False.

Pension plans always guarantee employee benefits?

False.

Defined contribution plans are more complex than DB plans?

False.