3.What the formula for determining the Projected Benefit Obligation? Give a brief explanation of each component....

3.What the formula for determining the Projected Benefit Obligation? Give a brief explanation of each component.

4. How do we determine if a pension plan is over- or underfunded? (What two amounts do we compare?)

Expert Solution

3 ) The PBO is nothing but the present value of an employee's pension.

Which calculates as follows:

Identify the funded status of the pension plan from the company's balance sheet.
Find the fair value of the pension plan's asset.

Which is calculated with following formula,

= the beginning balance of the fair value of the plan's asset +contributions to the pension plan if any + the actual return on the plan's assets - Benefits paid during the year if any

3. PBO = (2)-(1) = Fair value of pension plan’s asset – Funded status amount

4 ) To decide status of funded or unfunded, pensions are determined based on the level of assets and income belonging to the plan.

An underfunded pension plan is generally a company retirement plan that has more liabilities than assets. We call as an overfunded pension plan if assets of retirement plan more than liabilities of it.

Comparing between the obligations to pay pensions and the assets that have accumulated for funding required payments.

I hope this will help you . If requires clarification , you may comment below.

ekkarill92 answered 2 years ago

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