Chapter 19 - Pensions and other Postretirement Benefits Flashcards
What is the nature of a deferred compensation plan and what is it’s goal
-funds are set aside during employees service years and accumulate funds plus returns from funds
is supposed to provide income to individuals during their retirement years
What is a a pension plan
an arrangement where an employer provides benefits to retired employees for services they provided during their working years
Who does the employer give the contributions to in a pension plan
the pension plan administrator
(Think about TPA’s like Empower)
Who gives the retired employee it’s benefit payment
The pension plan administrator (TPA)
What is a defined contribution plan?
current employer/employee contributions are defined by an agreement and the future retiree benefits are dependent on success of employee’s investment
*Think about employee setting a 5% deferral and employer matching up to 5%
What is a defined benefit plan?
The future retiree benefits are defined by a pension formula and the current employer contribution is dependent on success of employers investments
Differences between Defined contribution and defined benefit plans
-contributions
-benefits (money paid)
-risk
-what it emphasizes
contributions:
D.C: defined by agreement
D.B: based on formula
benefits:
D.C: don’t know what is coming out
D.B: benefits are known and based on formula
risk:
D.C: employee
D.B: employer
emphasizes
D.C new talent
D.B long term loyalty
What does PBO stand for
projected benefit obligation
What is PBO based on
pension plan formula, anticipated future salaries, and service time
What does PPA stand for
pension plan asset
what does PSC stand for
prior service costs
what does OCI stand for
other comprehensive income
what does AOCI stand for
accumulated other comprehensive income
how do you account for a D.C pension plan?
what is the J.E
you expense it in period incurred
pension expense
A/P
What does uncertainty in defined benefit plans arise from?
- employee turnover
- return on plan assets
- age of retirement and life expectancies
- future compensation
- interest rates
what is an actuaries job?
access the uncertainties and estimate companies PBO
what do uncertainties in defined benefit plan affect
- PBO
- PPA
- Pension expense
What is the definition of the PBO
benefits for vested and non vested employees at future salaries
What is a vested benefit obligation?
benefits for vested employees only at current salaries
what is accumulated benefit obligation?
benefits for non vested employees at current salaries