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    Long-Term Financial Liabilities: Pension Plan

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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.

    Identify the five components that comprise pension expense. Briefly explain the nature of each component

    Discuss briefly the three approaches that have been suggested for reporting changes in accounting principle.

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    Hello
    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-contribution plan, there is no mention of the benefits paid out to employers, it merely specifies the sum that the employer promises to contribute each period based on a formula that considers such factors as the length of the employee's service, age, and compensation level. A common for of such a plan is the 401 (K) plan.

    A defined-benefit plan, on the other hand clearly defines the benefits the employees would receive in case of retirement and is typically based on the employees' years of service and the compensation level. Under such a plan, the company must determine the amount to be contributed to the plan (which is the present value of future benefits).

    Under a Defined-Contribution plan, the employer's obligation is to make a contribution to the plan each year based on the plan formula. The benefit of gain or risk of loss from assets contributed to the plan is borne by the employee.

    Under a Defined-Benefit plan, the employer's obligation is to make sufficient contributions each year to provide for the promised future benefits. Therefore, the employer is at risk to the ...

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