If a defined benefit pension scheme generates a loss/profit, is that absorbed by the company?
- Trivial OneLv 75 years agoBest answer
Yes (I'm speaking for US plans). If the plan balance (investment returns/contributions) exceeds the payout liability, the sponsoring company owns the excess assets. They usually are used to offset future contributions, increased liabilities and investment losses.If the company terminates the plan, the excess assets revert back to the company.
If there are insufficient assets in the plan to pay accrued liabilities, the plan is called "underfunded". Laws require that the funding levels increase over time or the company is subject to penalties. If the plan is terminated while underfunded, generally the company has to make up the difference. If there's a bankruptcy involved, then the PBGC (a government agency that insures pension plans) will make up some of the difference, and the plan participants usually get a reduced benefit.
- 5 years ago
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