acc Week 5 Assignment - Differentiate between a defined...

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Differentiate between a defined contribution pension plan and a defined benefit pension plan. Explain how the employer's obligation differs between the two types of plans. In a defined benefit pension plan there will be an outline of the employee's benefits they will receive when the employee retires. The benefits that are outlined are normally refined from the number of years the employee has been employed by the company and what level of compensation in the following years until retirement. This plan employees that the employer determine what contributions needed today to meet the commitments upon retirement. The employer can use several different approaches to meet these contributions. the employer for this plan is obligated to the employee at retirement enough money to provide for the retirement needs outlined in this plan. However, with a defined contribution plan the employer agrees to contribute an amount each period to a pension trust for the employee. The amount contributed is based on a formula. this formula considers different factors like age, employer's profit from the employee, length of employment, and the compensation level. This plan only determines the employer's contribution. There is no promise to the employee for the maximum benefit paid out at retirement. the common forms of this kind of plan are "401(k)" plans.
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Identify the five components that comprise pension expense. Briefly explain the nature of each component. The five components that comprise a pension expense are: service cost, amortization of unrecognized prior service cost, interest on the liability, gain or loss, and actual return on plan assets. There explanation is as follows: 1) Service cost is the expense from the increase of pension benefits that are payable, the projected benefit obligation. 2) Amortization of Unrecognized Prior Service Cost is the allocation of the prior service costs of
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This note was uploaded on 02/20/2012 for the course ACCOUNTING ACC 423 taught by Professor Hannah during the Winter '09 term at University of Phoenix.

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acc Week 5 Assignment - Differentiate between a defined...

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