Question

The service cost component of a defined benefit pension plan is computed as the:

Multiple Choice
A. Present value of the change in pension liability from additional employee service.
B. Present value of the change in the accrued pension liability.
C. Undiscounted change in pension liability from additional employee service.
D. Actual value of the change in the accrued pension liability.

Answer 1

Answer: The service cost component of a defined benefit pension plan is computed as the: Present value of the change in pension liability from additional employee service.

The service cost of a defined benefit pension plan is the change in the pension liability caused by one additional year of employee service. Also an expected return on pension plan assets does not cause an increase in the pension expense for a defined benefit plan.