When a pension plan commences, credit is often granted to employees for past years of service, giving rise to what is called:

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When a pension plan commences and credit is granted to employees for past years of service, it results in unfunded past service cost, unfunded benefits, and unfunded actuarial liability. This is because the plan has not set aside funds for these past service years, leading to liabilities that need to be funded over time.

When a Pension Plan Commences, Credit Is Often Granted to Employees