To determine whether a pension plan is over-funded or under-funded, a company must compare the:
A) fair market value of the pension plan assets to the accumulated benefit obligation.
B) cost of the pension plan assets to the accumulated benefit obligation.
C) accumulated benefit obligation to the plan's anticipated obligations.
D) fair market value of the pension plan assets to the net income on the Income Statement.

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 fair market value represents the current value of the assets in the pension plan, while the accumulated benefit obligation shows the value of the benefits that employees have earned so far. A pension plan is considered over-funded when the fair market value of the assets exceeds the accumulated benefit obligation, and under-funded when the accumulated benefit obligation is greater than the fair market value of the assets. Comparing the cost of the pension plan assets to the accumulated benefit obligation or the accumulated benefit obligation to the plan's anticipated obligations are not appropriate measures for determining under- or over-funding. The fair market value of the pension plan assets is not compared to the net income on the Income Statement to determine under- or over-funding.

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