About Defined Benefit Plans

Defined Benefit Plans involve accounting for them which is very complex. It is so because actuarial assumptions are required to measure the obligation and expenses. There is also a possibility of actuarial gains and losses. Furthermore, actuarial gains and losses are split into the following categories:-

(a)          Actuarial (gains)/losses arising from experience adjustment

(b)         Actuarial (gains)/losses arising from changes in Financial Assumptions

(c)          Actuarial (gains)/losses arising from changes in Demographic Assumptions

Furthermore, Defined Benefit Obligations are arrived at a discounted basis because these obligations are likely to be settled many years after the employees render the related service. The entire process to complete this exercise would normally require the services of a qualified actuary.