Differentiate Between a Defined Contribution and a Benefit Plan

Differentiate between a defined contribution and a benefit plan.

There are many differences and similarities between the contribution and benefit plan. One of the similarities between these two is that the benefit plans employers contribute to receive a tax favored status and on the contribution plan the employers and the employees both receive tax privilege. Another similarity is that the benefit plan the company contributes to the third party and in the contribution plan the employees have a deduction from their paycheck, whether it is monthly or weekly. However, they are different in that the contribution plan the employees have an opportunity to have more control in the way they are investing, whether it is how much they can contribute. When it comes to enrollment, in the contribution plan the employees need to be hired for at least a year but in the benefit plan the enrollment it is done automatically.

Determine the components of pension expense.

The pension expense has different components. One of the components is the service cost, which is the amount of money that employers needs to set up every year for the employees’ pension benefit plan upon retirement. This can depend on either salary increase and job promotions. It gives the projected value of how much benefit has been earned by the employee. Other components are: Interest on the Liability, Actual Return on Plan Assets, Amortization of Prior Services Cost, and Gain or Loss

Calculate pension liability and expense.

When it comes to calculating the pension liability and expense, first the price of the fair market value of the assets needs to be determined. The projected benefit obligation needs to be established. Once all this has been done, the projected benefit obligation is subtracted from the fair market value of the plan assets. The final step is to make sure that