[inviteyou]

I’m studying Pensions and came across the below question and it is choice B that got me on a wild goose chase. I might be just too tired of studying because I can’t really grasp what the questions is asking nor the answer choices.

Each of the following is a component of the changes in the net assets available for benefits of a defined benefit pension plan trust, except
A. The net change in fair value of each significant class of investments.
B. The net change in the actuarial present value of accumulated plan benefits.
C. Contributions from the employer and participants.
D. Benefits paid to participants.

What is accumulated plan benefits? Is it another name for the FV of plan assets? At first I thought it was a different term for accumulated benefit obligation, but ABO is present value of vested and non vested current salaries and that’s an obligation or liability. When I did a quick Google search for Accumulated plan benefits I found it is the present value of future benefits attributable.

Can anyone explain what this question means or the purpose?

AUD - 76
BEC - 87
FAR - 78
REG - 75

practice, Practice, PRACTICE!

[AusNat]

Hopefully a night's sleep mad this easier to think about, but in case not…

The question asks which of the four options WILL NOT impact the “net assets available for benefits.” You're focused on looking at whether each answer option would increase, decrease, or not affect the pool of assets available to actually PAY OUT benefits. This is the pool of assets (think of it as a bank account) that the plan holds and either distributes directly to beneficiaries or converts to cash (sells) to pay beneficiaries. This has nothing to do with the pension liability or other calculations regarding the benefits that will have to be paid out – it simply answers the question “what do you have on hand to actually pay benefits with?”
So what changes the total amount of what's in that “bank account”?
A. Yes, this would affect the value of assets available to pay out benefits. If a plan holds a pool of securities that it uses to pay benefits (by selling them for cash) and the securities increase in value, the plan could sell those securities for more money.
C. Yes. If the employer or employee add more money or assets to the bank account, the bank account gets bigger.
D. Yes. If you take money out of the account to pay beneficiaries, then the bank account gets smaller.

So B? “Actuarial present value of accumulated plan benefits” is the calculated projection/estimate of the total benefits that will need to be paid out, then converted to the present value. This is related to the question “what will you need to pay?” and not the “what do you have available to pay it with?” we're focused on. This is the correct “except for” answer choice.

Don't get too hung up on defining every answer choice though. Sometimes an answer choice is gibberish. Looking at the other answer choices and saying “well, those are all a yes, so the other one must be the no” is sometimes the best approach.

AUD - 94
BEC - 90
FAR - 95
REG - NINJA in Training

Are we there yet?

Waiting impatiently on my last score.

[inviteyou]

Thank you for clarifying. It makes sense now.

AUD - 76
BEC - 87
FAR - 78
REG - 75

practice, Practice, PRACTICE!

[Author]

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