Question

Scenario 2:

Bates Corp 2018 annual report disclosed the following pension information:

Benefit obligations and fair values of plan assets as of December 31, 2018, for Bates’ pension and postretirement plans are as follows:

In millions	Benefit Obligation	Fair Value of Plan Assets
U.S. pension	$13,683	$10,312
U.S. postretirement	280	–
Non-U.S. pension	219	153
Non-U.S. postretirement	23	–

What conclusions can you draw about the funded status of the company's pension plans and post employment obligation? Is this a concern? Why or why not Explain.

Answer 1

			($ in millions)
			U.S. pension	Non-U.S. pension
Projected benefit obligation (PBO)			$13,683	219
Fair value of plan assets			$10,312	153
Underfunded status			$3,371	$66
U.S. postretirement			$280
Non-U.S. postretirement				23
Total underfunding status			$3,651	$89	$3,740
The plan is underfunded, Bates Corp reports a net pension liability of $3371 million in its 2018 balance sheet under U.S. pension and $66 million under Non U.S. pension.
The company needs to provide for extra $3740 million to be at par with the PBO & post employment obligations.
Yes, this is a concern for the c.ompany. As the plan is underfunded i.e.; it has more liabilities than assets.
Hence, there is no assurance that future retirees will receive the pensions they were promised or that current retirees
will continue to get their previously established distribution amount.