FA Module 14 Pension fair value assets practice exam questions
(The attached PDF file has better formatting.)
A defined benefit pension plan has the following entries for 20XX.
● Employer contributions 72
● Current service costs 49
● Past service costs 52
● Discount rate used to estimate plan liabilities 3%
● Benefit obligation at beginning of year 5,134
● Benefit obligation at end of year 4,957
● Actuarial loss due to increase in plan obligation 52
● Fair value of plan assets at beginning of year 4,698
● Actual return on plan assets 295
● Expected rate of return on plan assets 4%
Question 14.1: Total service cost
What is the total service cost?
Answer 14.1: 49 + 52 = 101
(total service cost = past service cost + current service cost)
Question 14.2: Interest cost
What is the interest cost on the benefit obligation?
Answer 14.2: 3% × 5,134 = 154.02
(interest cost on the benefit obligation = discount rate × benefit obligation at the beginning of the year)
Question 14.3: Pension benefits paid
What are the pension benefits paid during the year?
Answer 14.3: 5,134 – 4,957 + 52 + 154.02 + 101 = 484.02
(pension benefits paid during the year = benefit obligation at the beginning of the year – benefit obligation at the end of the year + actuarial loss (or – actuarial gain) + interest expense on the benefit obligation + total service cost)
Question 14.4: Fair value of plan assets
What is the fair value of the plan assets at the end of the year?
Answer 14.4: 4,698 + 72 + 295 – 484.02 = 4,580.98
(fair value of plan assets at the end of the year = fair value of plan assets at the beginning of the year + employer contributions + actual return on plan assets – pension benefits paid)
Question 14.5: Periodic pension cost
What is the periodic pension cost for the year?
Answer 14.5: 101 + 52 + 154.02 – 295 = 12.02
(periodic pension cost = total service cost + actuarial loss (or – actuarial gain) + interest expense on the benefit obligation – actual return on plan assets)
|