Question

The accumulated benefit obligation (ABO) is equal to the:__________

1. actuarial present value of all benefits earned as of a specified date, both vested and nonvested, by employees using current salary levels in the pension plan formula
2. difference between the annual pension expense and the amount actually funded during the year
3. actuarial present value of all benefits earned as of a specified date, both vested and nonvested, by employees using anticipated future salary levels in the pension plan formula
4. actuarial present value of benefits attributed by the pension plan formula to services rendered by employees during the current year.

Answer 1

Answer: 1. actuarial present value of all benefits earned as of a specified date, both vested and nonvested, by employees using current salary levels in the pension plan formula

Step-by-step explanation:

The Accumulated Benefit Obligation (ABO) is a measure of the liability of a company at given time. The main assumption when doing this is that the plan could be terminated immediately.

It is for this reason that the current salary levels of employees are used and not the future salary levels. It is calculated by taking the Present Value of all benefits earned as of a specified date, both vested and nonvested, by employees.

Answer 2

1. actuarial present value of all benefits earned as of a specified date, both vested and nonvested, by employees using current salary levels in the pension plan formula

Step-by-step explanation:

Accumulated Benefit Obligation is the estimated pension plan liability of a company obtained at a particular point in time. This measure of calculating pension is based on the assumption that the pension can be suspended at the present time. Therefore, it calculates the present value of benefits, and takes into consideration the present salary and actuarial benefits.

Future salary or bonuses are not considered when doing this calculation. The pension plan can be discovered to be underfunded after the estimation is made.