Question

1) Which of the following arrangements results in an employer promising a former employee a fixed pension payment each month?

A) Defined benefit plan
B) Defined contribution plan
C) Optional retirement plan
D) Both a and b
E) None of the above

2) A government sponsors a defined benefit pension plan for which it accumulates resources in a Pension Trust Fund that meets GASB requirements. Which of the following should be reported in its proprietary fund statement of net position to report its pension obligation?

A) Total pension liability
B) Net Pension liability
C) Actuarially determined contribution liability
D) Pension obligation
E) None of the above

Answer 1

1)

A. Defined benefit plan.

A defined benefit pension plan is a type of pension plan in which an employer/sponsor promises a specified pension payment, lump-sum (or combination thereof) on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns. Traditionally, many governmental and public entities, as well as a large number of corporations, provided defined benefit plans, sometimes as a means of compensating workers in lieu of increased pay.

2)

B. Net Pension Liability

As per GASB, the net pension liability is the difference between the total pension liability (the present value of projected benefit payments to employees based on their past service) and the assets (mostly investments reported at fair value) set aside to pay current employees, retirees, and beneficiaries. Currently, governments must only report as a liability the difference between the contributions they are required to make to a pension plan in a given year versus what is actually funded.