CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

The employer's pension expense is the amount that it is obligated to pay to the pension trust in ______.
A. a defined benefit plan
B. a defined contribution plan
C. both defined benefit and defined contribution plans
Explanation: In a defined contribution plan, the employer's pension expense is equal to annual contribution needed. In a defined benefit plan, the pension obligation is the actuarial present value of forecasted benefits to be paid to retirees.

User Contributed Comments 4

User Comment
RNAN What is the "pension expense" called in a defined contribution plan? Shouldn't "C." be correct?
ThePessimist In a defined benefit plan, pension expense can be accrued - they employer won't necessarily pay it all to the plan (or may pay more). So they're both "pension expense," but in the DB case the company isn't "obligated to pay" it.
bmeisner I suppose that this is not correct for a defined benefit plan because the firm is not obligated to make the pension expense payment. They are only obligated to monitor the funded status.
tim2 I think there is a difference in that if the company pays a lot of money into a defined benefit plan one year then it can pay less in the future or even get some back so to some extent it can be an investment as well as an expense
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