You are researching the solvency of an old company with a heavily unionized work force. You...
You are researching the solvency of an old company with a heavily unionized work force. You are sure they have a defined benefit pension plan but when you examine their balance sheet you see no entry for the funded status on either the asset or the liability side. What could be the reason for this?
a. Their plan assets are exactly equal to their PBO
b. They have capitalized pension expense in their work product (inventory) or they passed it through income statement via SG&A.
c. The union precludes employees from participating in company pension plans.
Homework Answers
a. Their plan assets are exactly equal to their PBO - correct
option
Defined benefit pension plan is 100% fully funded that's why there
is no entry for the funded status on either the asset or the
liability side.The assets in a pension plan may exceed its
liabilities, in which case the plan is overfunded. The liabilities
of a pension plan may exceed its assets, in which case the plan is
underfunded
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