To determine whether a pension plan is over-funded or under-funded, a company must compare the:
A)historical cost of the pension plan assets to the accumulated benefit obligation.
B)accumulated benefit obligation to the plan's projected future obligation.
C)fair market value of the pension plan assets to the accumulated benefit obligation.
D)fair market value of the pension plan assets to the historical cost of the assets.

Question

Quizplus · Accepted Answer

To determine whether a pension plan is over-funded or under-funded, a company must compare the fair market value of the pension plan assets to the accumulated benefit obligation. The accumulated benefit obligation is the present value of the benefits to which the employees have already earned the right, while the fair market value of the plan assets represents the current value of the assets in the plan. If the fair market value of the plan assets is greater than the accumulated benefit obligation, the plan is over-funded. Conversely, if the fair market value of the plan assets is less than the accumulated benefit obligation, the plan is under-funded.

To Determine Whether a Pension Plan Is Over-Funded or Under-Funded