Question

Information regarding the defined-benefit pension plan of Melrose Products included the following for 2016 ($ in millions):

Plan assets, January 1...$350
Plan assets, December 31...$525
Retiree benefits paid (end of year)...$85
Return on plan assets...$50

What were the employer contributions to the pension plan at the end of 2016?

A) $30 million
B) $175 million
C) $210 million
D) $225 million

Answer 1

There were no employer contributions to the pension plan at the end of 2016.

Step-by-step explanation:

The employer contributions to the pension plan at the end of 2016 can be calculated as follows:

1. Net increase in plan assets = Plan assets on December 31 - Plan assets on January 1 = $525 million - $350 million = $175 million
2. Return on plan assets = $50 million
3. Retiree benefits paid = $85 million

The employer contributions can be determined by subtracting the change in plan assets and the return on plan assets from the retiree benefits paid. In this case, the employer contributions would be $85 million - $175 million - $50 million = $-140 million.

Since the calculated employer contributions are negative, it indicates that the plan assets and return on plan assets were sufficient to cover the retiree benefits paid.

Therefore, there were no employer contributions to the pension plan at the end of 2016.