Which of the following statements about defined benefit pension plans is true?
A)The expense is equal to the contribution amounts in a period.
B)The contributions to the fund are equal to the benefits paid in a period.
C)The expense is equal to the present value of the future benefit obligations incurred that period.
D)The amount of benefits the employee will receive depends on the performance of the pension plan.

Question

Quizplus · Accepted Answer

The expense for a defined benefit pension plan is equal to the present value of the future benefit obligations incurred in a period. This means that the company must estimate how much they will need to pay out in future benefits to employees and then calculate the current value of those payments in order to determine their current period expense. Option A is incorrect because the expense for a defined benefit plan is not equal to the contribution amounts in a period, as the company may contribute more or less than the amount required to fund the plan. Option B is incorrect because the contributions made are not necessarily equal to the benefits paid out in a period, as the contributions may be invested and grow over time. Option D is incorrect because the amount of benefits an employee will receive is predetermined and not dependent on the performance of the pension plan.

Which of the Following Statements About Defined Benefit Pension Plans