DEFINED BENEFIT PENSION PLANS

DEFINED BENEFIT PENSION PLANS - DEFINED BENEFIT PENSION...

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DEFINED BENEFIT PENSION PLANS An actuary first estimates the benefits to be paid to a person starting at his/her estimated retirement date through the date of that person’s death. In order to do this, the actuary must make various assumptions (actuarial assumptions) about mortality, employee turnover, early retirement frequency, future wage increases, future interest rates, future rates of return on invested assets and, perhaps, other matters. With this information, the actuary can forecast the amount of pension benefits expected to be paid to a retiree in future dollars. Those future dollar amounts form the basis of the actuary’s calculation of pension expense each year and form part of the basis for determining the amount of funding, if any, to be made to a pension plan. Most but not all pension plans are funded. All “qualified” pension plans are legally required to be funded, although some can be overfunded or underfunded, depending upon the investment markets. “Unqualified” pension plans are typically not funded. Most of
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