Question

The employer's pension expense is the amount that is obligated to pay the pension trust in

a. a defined benefit plan
b. a defined contribution plan
c. both defined benefit and defined contribution plan
d. none of these

Answer 1

The employer's pension expense is the amount contributed to a pension trust, which varies between defined benefit and defined contribution plans; employer contributions are fixed in the latter and aim to cover future obligations in the former.

Step-by-step explanation:

The employer's pension expense refers to the amount that the employer is obligated to pay into a pension trust. In the case of a defined benefit plan, the employer bears the responsibility of contributing enough to the pension fund to meet future obligations to retirees. Contrarily, in a defined contribution plan like 401(k)s or 403(b)s, the employer contributes a fixed amount to an employee's retirement account, which the employee can then invest in various financial vehicles. These defined contribution plans are advantageous because they are portable across jobs and provide some hedge against inflation through investment returns—features that are not typically associated with defined benefit plans.

Pension funds in a defined benefit plan are managed by the employer to plan for the retirement or disability of employees. It's important to note that employers offering pensions are also required to pay into the Pension Benefit Guarantee Corporation, ensuring some benefits even if the company fails to meet its pension obligations.