Question

If a company has an underfunded defined-benefit pension plan: A. no payment may be made to retirees until the company deposits all of the necessary assets into the pension fund. B. the difference between fund assets and amounts owed to retirees will still be paid by the federal Pension Benefit Guaranty Corporation. C. the value of the ABO (but not of the PBO) must be precisely the same as the amount of assets set aside to pay pension benefits. D. All of the above are true. E. None of the above is true.

Answer 1

If a company has an underfunded defined-benefit pension plan:

A. no payment may be made to retirees until the company deposits all of the necessary assets into the pension fund.

The statement is Correct because in case of underfunded defined benefit pension plan there is no assurance that the curent and future retirees will get the pensions until the company deposits the funds required for the pension.

B. the difference between fund assets and amounts owed to retirees will still be paid by the federal Pension Benefit Guaranty Corporation.

Pension benefit Guaranty Corporation will not pay the difference between fund assets and the amount owed by the retirees, it may pay less than what you receive from the pension plan, because the payments are considered based on the estimates. Hence this option is incorrect

C. the value of the ABO (but not of the PBO) must be precisely the same as the amount of assets set aside to pay pension benefits.

If the assets set aside are less than the Accumulated Benefit oligation (ABO), it results into underfunded defined benefit pension plan. So, the option is incorrect.

D. All of the above are true.

The option is incorrect because only option A is correct

E. None of the above is true.

The option is incorrect because option A is correct