Question

A state provides pension benefits to retired employees who have worked at least five years for the state. Based on employee salaries during 2022, the state actuary calculated that the employees earned pension benefits totaling $14 million. The state appropriated $10 million to the General Fund for payment to its Pension Trust Fund. However, the state encountered financial problems during 2022. It sent its pension system a check for $8 million in October 2022, saying that it would pay no more for the year. The Pension Trust Fund actually paid pension benefits of $3 million during 2022. How much should the General Fund recognize as pension expenditures for 2022?

a. $3 million
b. $8 million
c. $10 million
d. $14 million

Answer 1

The General Fund should recognize $8 million as pension expenditures for 2022, reflecting the actual amount transferred to the state's Pension Trust Fund.

Step-by-step explanation:

The question asks how much the General Fund should recognize as pension expenditures for 2022. This amount would be the actual money sent by the state to its Pension Trust Fund, which is $8 million. Despite the state actuary’s calculation of the employees earning pension benefits totaling $14 million, and the state appropriating $10 million, the financial troubles led to sending only $8 million to the pension system. Therefore, the correct answer is $8 million (option b), which reflects the actual cash flow transaction made by the General Fund towards pension obligations during 2022.