MGT322H5 : Pensions
Document Summary
Money put into an independent t rust, to protect the employee in case the company goes out of business. For dcp, employer"s contribution is defined, hence the risk of the investments is on the employee once the contribution is made to the trust. (promise fulfilled) For dbp, employer retains the risk even after putting in money in the t rust because they must fulfill the promise of delivering the promised pensions. So risk not transferred till pension is collected. Pension plan liabilities are off balance sheet, but they meet the definition of a liability because employer retains the risk of non performance by the trust. This is a good example of a political compromise where economic reality is not well portrayed. Pension plan assets are off balance sheet, but if the risk is on the employer if the t rust doesn"t perform well, they should be rewarded if the trust performs better than expected.
