Pension payable definition
/Pension payable is a general ledger account in which is recorded the liability that an employer owes to its employee pension plan. When there is a comparatively large balance in this account, it can signal a lack of employer liquidity.
When an employer makes a payment against a pension payable, this reduces the balance in the pension payable account. However, it is possible for the balance in this account to increase when there are changes in the actuarial assumptions associated with a pension plan, or when pension plan benefits are increased.
Example of a Pension Payable
Albatross Corporation operates a defined benefit pension plan on behalf of its employees. Following a review by its actuarial consultants, the company concludes that it has a pension liability of $2 million, which is the present value of all pension payments that it expects to make into the plan in subsequent years. This liability is comprised of a $150,000 pension payable, which it expects to pay within the next 12 months, and an $850,000 long-term pension liability, which it will pay further in the future. Over the next year, its pension payable will decline whenever the company makes payments into the plan, but may also be adjusted upward, depending on changes in any underlying actuarial assumptions.