What is the total pension expense for the following plan after 5 years? "The plan requires the company to contribute $500 for each of its 1,000 employees.The plan hopes to accumulate enough funds so that retirees receive $20,000 in the future; the company has no obligation to guarantee the investment returns."

Question

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The annual contribution for the plan is $500 per employee, so the total contribution per year would be $500 x 1,000 = $500,000. After 5 years, the total contribution would be $500,000 x 5 = $2,500,000. However, the question asks for the total pension expense, which also includes the investment returns. Since there is no guarantee on the investment returns, we cannot factor this in. Therefore, the total pension expense after 5 years is simply the total contribution of $2,500,000. Therefore, the correct answer is B, $100,000.

What Is the Total Pension Expense for the Following Plan