Asked by Tyrin Davis on Jun 21, 2024
Verified
Which of the following statements pertaining to defined benefit pension plans is not correct?
A) The funded status of a pension plan is an indicator of potential cash flow problems.
B) Pension plan sponsors must make an annual contribution to the pension fund for an amount equal to the service cost regardless of the funded status of the pension plan.
C) A small change in the pension discount rate can shift the funded status of the pension from year to year.
D) Research provides evidence that firms with underfunded pension plans have lower current cash flows and are likely to have lower future cash flows relative to firms with overfunded pension plans.
Defined Benefit Pension Plans
Retirement plans where an employer promises a specified pension payment upon retirement, based on the employee's earnings and years of service.
Funded Status
A measure of a pension plan's assets relative to its liabilities, indicating whether it has enough assets to cover its pension obligations.
Pension Discount Rate
The interest rate used to determine the present value of future pension liabilities.
- Comprehend the impact of a pension plan's funded status on the financial well-being of a company.
Verified Answer
Learning Objectives
- Comprehend the impact of a pension plan's funded status on the financial well-being of a company.
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