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Pensions
Pension Terms
15
Accounting
Undergraduate 2
03/28/2007

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Cards

Term
Defined Contribution Pension Plans
Definition
Fixed annual contributions to a pension fund; employees choose where fundds are invested -- usually stocks or fixed-income securities.
Term
Defined Benefit Pension Plans
Definition
Fixed retirement benefits defined by a designated formula, based on employees' years of service and annual compensation.
Term
Actuary
Definition
A professional trained in a particular branch of statistics and mathmatics to assess the various uncertainties and to estimate the comapany's obligation to employees in connection with its pension plan.
Term
Vested Benefits Obligation (VBO)
Definition
Benefits that employees have the right to receive even if their employment were to cease today.
Term
Accumulated Benefit Obligation (ABO)
Definition
The discounted present value of estimated retirement benefits earned so far by employees, applying the plan's pension formula using existing compensation levels.
Term
Projected Benefit Obligation (PBO)
Definition
The discounted present value of estimated retirement benefits earned so far by employees, applying the plan's pension formula using projected future compensation levels.
Term
Pension Formula
Definition
1 1/2% x Years of Service x Final year's salary
Term
Service Cost
Definition
Increase in the projected benefit obligation attributable to employee service performed during the period.
Term
Interest Cost
Definition
Interest accrued on the projected benefit obligation calculated as the discount rate multiplied by the projected benefit obligation at the beginning of the year.
Term
Prior Service Cost
Definition
The cost of credit given for an amendment to a pension plan to employee service rendered in prior years.
Term
Pension Plan Assets
Definition
Employer contributions and accumulated earnings on the investment of those contributions to be used to pay retirement benefits to retired employees.
Term
Trustee
Definition
The person who accepts employer contributions, invests the contributions, accumulates the earnings on the investments, and pays benefits from the plan assets to retired employees or their beneficiaries.
Term
Expected Return on Plan Assets
Definition
Estimated long-term return on invested assets.
Term
Funded Status
Definition
The difference between the employer's obligation (PBO) and the resources available to satisfy that obligation (plan assets).
Term
Service Method
Definition
The allocation approach that reflects the declining service pattern of the prior service cost.
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