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In the Defined Benefit Plan, I personally think that the most twisting parts are:
Service Costs- which goes to liability
Contributions- which goes to Assetand Benefits Paid- which is reduced from both sides (assets and liabilities)
Out of these three terms, Benefits Paid is clear to me.
Sir, I would kindly ask you to please give me an example for SERVICE COSTS and CONTRIBUTIONS.
Current Service Costs represent the increase in the obligation resulting from the fact that our employees have worked for another year. If you listen to the lecture, it’s the teachers’ 2%
Contributions is the cash amount paid into the pension fund by the company to build up the fund so there is enough in there to pay the employees as they retire
Depending on the plan, the contributions will consist of two to three components
1. employees required contribution
2. employers required contribution
3. employees voluntary contributionor some derivative of these.
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