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Past Service Liability

Definition of "Past service liability"

Kaya Wittenburg
  Sky Five Properties

Employer's obligation to fund a pension plan for the time period when employees were qualified to participate but the plan was not yet established. For example, a pension plan is established at XYZ Co. in 1985. Because John Smith started at the firm in 1975, he would have a past service credit for his 10 years of service before the plan started. For funding purposes, annual contribu­tions are broken down into future service benefits and past service benefit. Past service liability is not funded entirely in the initial year of a plan, primarily because it would be too expensive, and the IRS requires that deductions be spread over 10 years.

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