What indicates a surplus in a pension plan?

• A. The amount of liabilities exceeding assets
• B. The total contributions by employees
• C. The amount of assets in excess of the projected pension benefit (PBO)
• D. The current market value of pension investments

Answer: (C)

A surplus in a pension plan is indicated by the situation where the amount of assets exceeds the projected pension benefits (PBO). This means that the plan has enough resources to meet its future obligations to beneficiaries, suggesting that it is financially healthy.

When assets are in excess of the PBO, it signals that the pension plan has a cushion to manage liabilities, which can help mitigate risks associated with potential adverse investment performance or changes in demographics that may affect the number of beneficiaries. This surplus can allow the plan to ensure stable benefit payments and even consider enhancing benefits or reducing future contributions.

The other options do not accurately reflect a surplus in a pension plan. For instance, liabilities exceeding assets would indicate a deficit, while total contributions by employees or the current market value of investments, alone, do not necessarily capture the overall financial health in relation to future obligations. A true surplus is specifically about having enough funds after considering projected liabilities.