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In: Accounting

Why would Category 1 assets be used to fund a pension plan?

Why would Category 1 assets be used to fund a pension plan?

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Expert Solution

Category 1 assets or Level 1 assets means listed stocks, bonds or any other assets that have a mark to market mechanism for setting a fair market value. So, it is clear that category 1 assets has only a minimum effect of time value of money.

Pension plan is a retairment plan where the employer pools a sum of money (a contribution may be collected from employee) for the future benefits of the employee. Contribution from the part of employer as well as the employee is accumulated and disbursed periodically after the retairement of the employee.

It is clear that a pension plan involves pooling of money to disburse in future. Since there is a significant time gap between this activities, the time value of money becomes a major concern. The contribution provided to pension plan during the employment of the worker should give a fair value even after the retirement of the employee. This is why category 1 assets are used to fund pension plan.

ekkarill92 answered 1 year ago
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