Question

What are the components that make up the Plan Assets? Name three events that might change the balance of the plan assets. Describe all of them.

Answer 1

Plan Assets are the assets of a funded defined benefit plan. A funded defined benefit plan is one in which the employer contributes an amount periodically to the fund and the amounts are managed by a pension fund manager and invested in different asset classes. The components that make up the plan assets are:- a) The future liabilities, or benefit obligations, created by employee service. b) The pension fund, or plan assets, that are used to pay for retiree benefits. The balance of plan assets can change due to:- a) Investment Returns. b) Employer Contributions c) Payment of benefits. A) Investment Returns:- The term investment return refers to dividends, interest and capital gains generated by assets held in a company's pension fund. B) Employer Contributions:- Is the contribution made by the employer to the trust fund. They are in the nature of contractual obligations. C) Payment of benefits:- The employee is guaranteed some benefits/payments in the future out of these plans.