Analyzing and Interpreting Pension Disclosures General Mills reports the following pension footnote in its 10-K report.

Defined Benefit Pension Plan ($ millions)	2010	2009
Change in Plan Assets
Fair value at beginning of year	$ 3,157.8	$ 4,128.7
Actual return on assets	535.9	(1,009.1)
Employer contributions	17.1	220.2
Plan participant contributions	3.5	3.1
Benefits payments	(182.6)	(177.4)
Foreign currency	(1.9)	(7.7)
Fair value at end of year	$ 3,529.8	$ 3,157.8
Change in Projected Benefit Obligation
Benefit obligation at beginning of year	$ 3,167.3	$ 3,224.1
Service cost	70.9	76.5
Interest cost	230.3	215.4
Plan amendment	25.8	0.3
Curtailment/other	--	--
Plan participant contributions	3.5	3.1
Medicare Part D reimbursements	--	--
Actuarial loss (gain)	716.4	(166.8)
Benefits payments	(182.6)	(177.4)
Foreign currency	(1.6)	(7.9)
Projected benefit obligation at end of year	$ 4,030.0	$ 3,167.3

Estimated benefit payments, which reflect expected future service, as appropriate, are expected to be paid from fiscal 2011-2020 as follows:

(in millions)	Defined BenefitPension Plans
2011	$ 194.8
2012	202.8
2013	211.9
2014	221.4
2015	231.4
2016-2020	$ 1,331.7

(a) Which of the statements below best describes what is meant by service cost and interest cost?

Service cost represents the wages earned by employees managing the pension plan during the current year. Interest cost is an expense that accrues on the pension obligation during the year.

Service cost represents the additional pension benefits earned by employees during the current year but paid to employees in the future. Interest cost is an expense that accrues on the pension obligation during the year.

Service cost represents the additional pension benefits earned by employees during the current year but paid to employees in the future. Interest cost is the expense we incur on funds borrowed by the pension plan.

Service cost represents the wages earned by employees managing the pension plan during the current year. Interest cost is the expense we incur on funds borrowed by the pension plan.

(b) What is the total amount paid to retirees during fiscal 2010?

Round answers to one decimal place. If the number after the decimal place is a zero, do not enter it (for example, 185.0 should be entered as 185). Answer($ million) What is the source of funds to make these payments to retirees?

pension assets

operating cash flows

pension obligations

pension liabilities

(c) Compute the 2010 funded status for the company's pension plan.

• Use a negative sign to indicate the pension plan is underfunded, if applicable.
• Round answers to one decimal place. If the number after the decimal place is a zero, do not enter it (for example, 185.0 should be entered as 185).

Answer($ million) (d) Which of the following statements best describes what are the plan amendment adjustments, and how they differ from actuarial gains and losses?

Actuarial gains (losses) are decreases (increases) to the PBO resulting from changes in the assumptions used to estimate the pension or health care liability, while amendment adjustments are changes to the liability arising from amendments to the plan itself.

Actuarial gains and losses represent charges that the pension plan incurs from actuaries that it hires to perform various estimates while amendment adjustments are changes to the liability arising from amendments to the plan itself.

Actuarial gains (losses) are decreases (increases) to the PBO resulting from changes in the assumptions used to estimate the pension or health care liability, while amendment adjustments are adjustments made in accounting for the plan as a result of those estimates.

Actuarial gains and losses represent charges that the pension plan incurs from actuaries that it hires to perform various estimates, while amendment adjustments are adjustments made in accounting for the plan as a result of those estimates.

(e) General Mills projects payments to retirees of over $200 million per year. Which of the following statements best describes how it is able to contribute only $17.1 million to its pension plan?

Contributions to pension plans are made mostly by employees. Any contributions that General Mills makes are purely voluntary.

Federal law does not require companies to fund pension plans. Any contributions that General Mills makes are purely voluntary.

The funding for payments to retirees comes from the pension assets. General Mills, therefore, does not need to contribute its own funds to the pension plan.

The funding for payments to retirees comes from pension assets. General Mills' pension plan assets yield investment returns that currently provide the cash that is paid to retirees.

(f) Which of the following statements best describes the effect from a substantial decline in the financial markets on General Mills' contribution to its pension plans?

General Mills' pension plans are not affected by fluctuations in the general financial markets. There would be no effect on General Mills.

General Mills' contributions to its pension plans are purely voluntary. Fluctuations in the general financial markets would, therefore, have no effect.

Should pension investments decline as a result of a decline in the financial markets, General Mills might be required to increase its cash contribution to the pension plan.

Any shortfall in contributions is covered by contributions from the Federal Government under its various pension benefit guarantee programs. Fluctuations in the general financial markets would, therefore, have no effect.