Defined Benefit Plan - Pension income

I know that the pension income of retirees depend on salary, working period until retirement,…

Now, suppose the manager of a DB plan succeeds in generating high excess return. Must the plan distribute a portion of the return to participants by increasing their pension income?



Thank you :slight_smile:

For the purposes of a CFA exam, unless otherwise told, you can assume no.

However, in the real world, there has been all sorts of kerfuffle in pension circles about who is entitled to plan surplus. Some plans enhance the monthly payouts, some used surplus to take contribution holidays, some takeover artists raided plans for the surplus after covering pensions with lifeco annuities, etc.

Thus endeth the sermon. Go study.

The key incentive for a DB plan to generate surplus, like said by breadmaker, would be to ensure that the sponsor’s level of contributions can reduce in the future.

The IPS should dictate the terms and responsibilities of the DBP and the various participants. The company is only responsible to the defined benefits entitled to the beneficiaries (and nothing more), which are strictly defined.