Question

Which of the following pension-related definitions is not correct?

1) Vested benefits are payments that are not contingent on the employee's continuing in the service of the employer.
2) Present value is the current worth of an amount or amounts payable or receivable in the future.
3) Actuarial assumptions are those made by actuaries concerning future events affecting pension costs.
4) Service cost is the amount paid annually to a funding agency under an unfunded pension plan.

Answer 1

The incorrect pension-related definition is the service cost.

The correct definition that is not accurate is:

1. Service cost is the amount paid annually to a funding agency under an unfunded pension plan.

Service cost is actually the cost of the pension benefits earned by employees during the current year and it represents the increase in the present value of the vested benefits.