Accounting for Pensions

How do companies generally design pension plans?

With qualified plans

What is the purpose of the formula used in a defined contribution plan?

To require an employer to contribute a certain sum each period based on the formula

Commonly, in a defined benefit plan, who makes the contributions to the plan?

An employer

Who benefits from the gain (or risks the loss) from the assets contributed to a defined contribution plan?

The employee

In a defined benefit plan, what is meant by the process of funding?

Making the periodic contributions to a funding agency to ensure that funds are available to meet retirees' claims

What is the purpose of a fomula in a defined benefit plan?

To define the benefits that the employee will receive at the time of retirement

Fluffle Company bears the entire cost of its employee pension.

Which type of plan does Fluffle have?

Noncontributory plan

What is the purpose of a pension plan?

For an employer to provide benefits to retired employees

Which plan involves an employer adding a certain sum to a pension trust each period, based on a formula?

Defined contribution plan

A company provides employees with a noncontributory defined benefit plan as part of the overall compensation package.

Which characteristic is associated with this type of plan?

The company is at risk for payments falling short of the future benefits.

A company has a pension plan where the employer agrees to fund a fixed amount to a pension trust each pay period. The payment is based on a formula that considers the employees’ age, length of service, salaries, and employer's profits.

What is the name for this type of pension plan?

Defined contribution

Which category is considered in a defined contribution plan?

Employer payments

Which type of U.S. pension plan has grown in the number of active participants over the past 40 years?

Defined contribution plans

Which factor is considered when calculating an employee's pension payment in a defined benefit plan?

Length of service

A company includes a pension plan as part of its overall compensation package. The employer bears the entire cost of the plan.

Which type of plan is described in this scenario?

Noncontributory plan

A company includes a pension plan as part of its overall compensation package. Employees may voluntarily make payments to increase benefits, and they assume part of the cost of the benefits.

Which type of plan is described in this scenario?

Contributory plan

Which factor is a function of the defined benefit plan funding model for each employee's benefit?

Employee's compensation level

A company provides a pension plan to eligible new hires. Pension payments are typically based on the employee’s years of service and the compensation level as the employee approaches retirement. It is the responsibility of the employer to pay any shortfall in the accumulated assets held by the trust.

Which type of plan is described in the scenario?

Defined benefit plan

Which plan involves an employer adding a certain sum to a pension trust each period, based on a formula?

Defined contribution plan

Which amount does a defined contribution plan specify?

The required payment amount by the employer

Which calculation is used to measure the funding needed for projected benefit obligations of a defined benefit plan?

Present value

Which statement accurately describes an employer's accounting when making a required contribution to a defined contribution pension plan?

The employer pays an amount each year to the plan based on a formula calculated by the plan.

How is a noncontributory pension plan funded?

The employer makes payments to the funding agency.

In substance, who do the trust assets and liabilities belong to under a defined benefit plan?

Employer

Which type of plan is a 401(k)?

Defined contribution

Which type of pension plan allows employees to deduct contributions from their personal taxable income?

Qualified

Which factor is a function of the defined benefit plan funding model for each employee's benefit?

Employee's compensation level

Which plan outlines the payments that employees will receive when they retire?

Defined benefit plan

How is a defined benefit pension plan funded?

The employer makes payments to the funding agency

The difference between a defined contribution pension plan and a defined benefit pension plan is:

In a defined contribution plan, the employer agrees to contribute a certain amount based on a prescribed formula to the plan, and the employee bears the risk of performance and the resulting benefits, whereas the employer generally entirely bears all the costs and risks of a defined benefit plan

A company includes a pension plan as part of its overall benefits package offered to its employees. The employer bears the entire cost of the plan. Which type of pension plan is described in this scenario?

Defined Benefit plan

A company includes a pension plan as part of its overall employee benefits package. Employees may voluntarily make payments to increase their retirement benefits under the pension plan. Which type of pension plan is described in this scenario?

Defined Contribution plan

Which type of pension plan requires an employer to bear the entire cost and also to add a certain contribution of money to a pension trust each period?

Defined Benefit plan

Which of the following is not a characteristic of a defined contribution pension plan?

The benefits to be received by employees are defined by the terms of the plan

Which of the following disclosures of pension plan information would not normally be required in the footnotes to the financial statements?

All are required

Which amount does a defined contribution plan specify?

The required payment amount by the employer

Which type of plan is 401(k)?

Defined Contribution plan

Which type of U.S. pension plan has grown substantially in the number of active participants over the past 40 years?

Defined Contribution plan

A company funds a pension plan for eligible new hires. The employer typically turns the assets over to an independent third-party trustee who manages the pension plan separately and distinctly from the employer. The employee benefits when assets in the plan generate gains but also bears the risk of loss from asset declines.

Which type of pension plan is described in the scenario?

Defined Contribution plan

In a Defined Benefit plan, the process of funding refers to:

The Company makes periodic contributions to a funding agency to ensure that funds are available to meet the employer’s obligation to the employees

In accounting for a defined benefit pension plan:

An appropriate funding pattern must be established to ensure that enough money will be available at retirement to meet the benefits promised

In substance, who do the trust assets and liabilities belong to under a defined benefit plan?

The employer

A company provides a pension plan to eligible new hires. Pension payments are typically based on the employee’s years of service and the compensation level as the employee approaches retirement. It is the responsibility of the employer to pay for any shortfall in the accumulated assets held by the trust.

Which type of plan is described in the scenario?

Defined Benefit plan

A company provides employees with a defined benefit plan as part of the overall compensation package. Which characteristic is associated with this type of plan?

The company is at risk of payments falling short of future benefits

Commonly, in a defined benefit plan, who makes the contributions to the plan?

An employer

Who benefits from the gains (or risks of the loss) from the assets contributed to a defined benefit plan and invested by a pension manager?

The employer