CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

Southwind Company changed the factor in its pension benefit formula on 1/1/2012 from .02 to .022. This change is retroactive back to the start of the plan in 2009. This amendment will result in:

I. A decrease in service cost.
II. An increase in plan assets.
III. A decrease in projected benefit obligation.
A. I and II
B. III only
C. None of them
Explanation: This amendment to the pension benefit formula would increase the amount of benefits payable to retired employees. Thus, it would not decrease the service cost or the projected benefit obligation. Also, the value of the plan assets is independent of the pension benefit formula.

User Contributed Comments 3

User Comment
Querdenker Can ynzone elaborate on the mysterious "factor"? Did not find it obvious what it is supposed to mean neither from question nor answer...
ramdabom Factor seems to suggest compensation growth
gaurav1207 Factor = # of yrs worked * Current salary level*(1+compensation growth)^yrs to retirement
You need to log in first to add your comment.