Question

Five events that cause change in PBO balance : a) Changes in the discount rate

b) Changes in the expected return on plan assets
c) Changes in the future compensation levels
d) Changes in the demographics of plan participants

Answer 1

Changes in the discount rate, expected return on plan assets, future compensation levels, and demographics of plan participants can cause change in PBO balance.

Step-by-step explanation:

The events that cause change in PBO balance are:

1. Changes in the discount rate: When the discount rate decreases, the present value of future pension obligations increases, resulting in a higher PBO balance.
2. Changes in the expected return on plan assets: If lower returns on plan assets are expected, the PBO balance will be higher.
3. Changes in the future compensation levels: If future compensation levels increase, the PBO balance will also increase.
4. Changes in the demographics of plan participants: If the demographic profile of plan participants changes, such as an increase in the average age or longer life expectancies, the PBO balance will be affected.