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Basic Question 20 of 24

If the pension plan is discontinued, the employer's pension obligation is

A. VBO.
B. ABO.
C. PBO.
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User Contributed Comments 7

User Comment
bmeisner That doesn't seem very fair for participants who were expecting benefits but haven't reached the vesting period yet. I would have guessed ABO.
bmeisner From p. 125 of the reading, "ABO gives the liability that would be due if the compoany liquidated the plan." Analyst notes, should not the answer be B. ABO?
jhmorris The answer is VBO since an employee's vesting into the pension plan entitles them to its benefits. If they had not been vested and left the company, they would have had no claim on receiving the pension benefit. As such, a discontinuing of the pension plan requires that the company continue its obligation to those employees who have a vested interest.
HenryQ I think this should be ABO. What if the plan is stopped and the employee continues to work for the firm until he is full vested? If that is true, the employee's pension obligation should be ABO. If the question is "When the employee leaves the firm...then the answer should be VBO.
noonah If the plan has continuity at current salary levels, then it is ABO, and at retiement salary levels, it is PBO, but the question says "discontinued" and that means the employer's benefits obligation until that moment in time only.
dblueroom I think, ABO is essentially the same except it has no salary increase component. so it does project over a service life in the future. If company is to discontinue, it should be just VBO for the number of years already served.
arudkov discOntinued, NOT discOUnted. (((((
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Barnes

Barnes

Learning Outcome Statements

explain and calculate measures of a defined benefit pension obligation (i.e., present value of the defined benefit obligation and projected benefit obligation) and net pension liability (or asset);

describe the components of a company's defined benefit pension costs;

explain and calculate the effect of a defined benefit plan's assumptions on the defined benefit obligation and periodic pension cost;

CFA® 2025 Level II Curriculum, Volume 2, Module 11.