Impact of Low Discount Rate on Pension Liabilities

Medium Employee Compensation Defined Benefit Plans

In evaluating the financial statements of Delta Tech Corp., a company with a significant defined benefit pension plan, an analyst notices that the company has reported a low discount rate for its pension obligations. Given the current interest rate environment, the discount rate used can have a substantial impact on the present value of pension liabilities.

Based on the details presented, which of the following statements concerning the implications of a low discount rate on Delta Tech Corp.'s defined benefit plan is MOST accurate?

A low discount rate will increase the present value of pension liabilities, potentially leading to higher pension expense and reduced net income.

A low discount rate will decrease the present value of pension liabilities, positively affecting the company's funded status.

A low discount rate has no significant impact on the valuation of pension obligations and the resulting financial statements.

Hint

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% Correct98%