Page 120 - SBR Integrated Workbook STUDENT S18-J19
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Chapter 9
Worked example
An entity pays fixed contributions of 5% of employee salaries into a pension
plan each month. The entity has no obligation outside of its fixed contributions.
The lack of any obligation to contribute further assets into the fund means that
this is a defined contribution plan.
Worked example
An entity guarantees a particular level of pension benefit to its employees
upon retirement. The annual pension income that employees will receive is
based on the following formula:
Salary at retirement × (no. of years worked/60 years)
The entity has an obligation to pay extra funds into the pension plan to meet
this promised level of pension benefits. This is therefore a defined benefit plan.
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