Alternative methods exist for the measurement of the pension obligation (liability). Which measure requires the use of future salaries in its computation?
a. Vested benefit obligation
b. Accumulated benefit obligation
c. Projected benefit obligation
d. Restructured benefit obligation
Answer: Projected benefit obligation
The accumulated benefit obligation measures
a. the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels.
b. the pension obligation on the basis of the plan formula applied to years of service to date and based on future salary levels.
c. the level cost that will be sufficient, together with interest to provide the total benefits at retirement.
d. the shortest possible period for funding to maximize the tax deduction.
Answer: the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels
The projected benefit obligation is the measure of pension obligation that
a. is required to be used for reporting the service cost component of pension expense.
b. requires pension expense to be determined solely on the basis of the plan formula applied to years of service to date and based on existing salary levels.
c. requires the longest possible period for funding to maximize the tax deduction.
d. is not sanctioned under generally accepted accounting principles for reporting the service cost component of pension expense.
Answer: is required to be used for reporting the service cost component of pension expense
