A pension "is a fund into which a sum of money is added during an employee's employment years and from which payments are drawn to support the person's retirement from work in the form of periodic payments."

A defined contribution plan guarantees (to employees) fixed annual contributions to a pension plan (e.g., 5% of the employee's salary).

A defined benefit pension plan, on the other hand, guarantees a fixed amount of retirement money available to employees when they retire.

• Not many companies offer new employees defined benefit plans. But there are still many individuals covered by old defined benefit plans.

• Accounting for defined benefit plans is complex.

• Accounting for defined contribution plans is not:

Debit: Pension Expense $XXX

Credit: Cash $XXX

• A pension obligation is an employer's obligation to pay retirement income to its employees in the future.

• Plan assets refer to the funds (e.g., cash and investments) set aside by the employer to pay retirement income to its employees in the future.

• Pension expense refers the periodic expense associated with having a pension plan.