dirk01

When considering the major differences between a defined contribution and a defined benefit pension plan, which of the following statements is most accurate?

A) Among the different types of pension plans, accounting for a pay-related defined benefit plan is the most complicated because of the required actuarial assumptions.

B) Accounting for a defined contribution pension plan is the most complicated because of the many investment options available to the employees.

C) A company with a defined contribution plan will report on its balance sheet the net difference between the value of the pension fund assets and the value of the pension liability.

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Three actuarial assumptions (discount rate, expected increase in employee compensation and the expected return on plan assets) must be estimated to project the value of the corporation’s pension liability today. Subtle changes to any of the three assumptions can drastically change the estimated liability.