- CFA Exams
- CFA Exam: Level II 2021
- Study Session 5. Financial Reporting and Analysis (1)
- Reading 14. Employee Compensation: Post-Employment and Share-Based
- Subject 3. Analysis of pension plan disclosures
CFA Practice Question
Select the correct statement(s):
II. It is possible that a company's pension plan can be underfunded on the basis of funded status, but overfunded according to the reported funding level.
I. Underfunding of the reported funding level is not a concern for investors because what matters is the funding status of the real economic position of a pension plan.
II. It is possible that a company's pension plan can be underfunded on the basis of funded status, but overfunded according to the reported funding level.
Correct Answer: II
User Contributed Comments 4
| User | Comment |
|---|---|
| josepe | Funded status = fair value of plan assets less PBO. If PBO is larger than fair value of plan assets, funded status is underfunded. Reported funding level depends on expected return on plan assets. If expected return is higher than actual return, as well in this case as higher than required return to be fully funded, reported funding level will be overfunded. |
| josepe | I should have mentioned that fair value of plan assets depends only on actual return, not expected return. |
| DCPWS | Josepe - very helpful. |
| lvjunzhang | why not I |