Pendulum Enterprises has a defined benefit plan. Employees receive a pension equal to 2% of the average of the highest 5 years of salary and based on years of service. On December 31 2020, the fair value of the pension assets in the plan is $10.7 M, although pension contributions were in excess of $12.5 M, and the estimated pension obligation is $12.3M.
Instructions
a) Mary-Lou is considering retirement but wants to know how much she is entitled to receive under this defined benefit plan. Her 5 years highest average earnings are $67,500 and she has 30 years of service. What is her annual pension benefit?
b) Is the plan over or underfunded? By how much? Does this get reflected in the in the financial statements? If so, where and by how much?
c) In determining the pension obligation, what factors should management take into consideration?

Question

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The Answer of Pendulum Enterprises has a defined benefit plan. Employees receive a pension equal to 2% of the average of the highest 5 years of salary and based on years of service. On December 31 2020, the fair value of the pension assets in the plan is $10.7 M, although pension contributions were in excess of $12.5 M, and the estimated pension obligation is $12.3M.
Instructions
a) Mary-Lou is considering retirement but wants to know how much she is entitled to receive under this defined benefit plan. Her 5 years highest average earnings are $67,500 and she has 30 years of service. What is her annual pension benefit?
b) Is the plan over or underfunded? By how much? Does this get reflected in the in the financial statements? If so, where and by how much?
c) In determining the pension obligation, what factors should management take into consideration?

Pendulum Enterprises Has a Defined Benefit Plan