POLY Industries maintains a defined-benefit pension plan covering all its U.S. e
ID: 2532694 • Letter: P
Question
POLY Industries maintains a defined-benefit pension plan covering all its U.S. employees. The projected benefit obligation (PBO) was determined using a discount rate of 7%. The expected rate of compensation growth is 5%, and the expected rate of return on plan assets is 15%. The pension plan is currently over-funded.
(Required)
1. Indicate (higher, lower, or no effect) and briefly explain the effect of an decrease in the discount rate on:
a. The PBO in the year of change
b. Pension cost in the year of change
2. Indicate (higher, lower, or no effect) and briefly explain the effect of an decrease in the expected rate of compensation growth on:
a. The PBO in the year of change
b. Pension cost in the year of change
3. Indicate (higher, lower, or no effect) and briefly explain the effect of an decrease in the expected rate of return on plan assets on:
a. The PBO in the year of change
b. Pension cost in the year of change
Explanation / Answer
1)higher in the year of PBO change
higher in the year of change in pension cost
2)lower effect on expected rate of growth
No effect on cost of effected growth
3)Higher effect in the year of change in PVP
Lower effect on expected rate of return.
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