This chapter discusses the measurement of benefit obligations for defined benefit pension and OPEB plans as well as specific considerations relative to the determination and measurement of plan assets. Measuring pension and OPEB obligations includes three key considerations:
Projections and assumptions – As the amount of pension and OPEB benefits ultimately paid to each employee depends on future events, such as length of service, future compensation levels or future health care costs, employee turnover, and mortality, it is necessary to make estimates and assumptions about those future events.
Interest rates – The current measure of the pension and OPEB benefit obligation is the discounted present value of the expected future benefit payments; consequently, the expected gross benefit payments in the future must be discounted to present value at an appropriate discount rate.
Attribution – The projected benefit obligation (PBO) or accumulated postretirement benefit obligation (APBO) at any point in time only reflects the value of benefits that are attributable to an employee's past service (present obligation). As a result, plans that do not provide for an equal amount of benefit for each service year need to develop an attribution approach to determine the benefits attributable to past service and those attributable to future service.
Sections in this chapter will cover measurement timing (i.e., measurement date), and, specific to pension plans, the distinction between the accumulated benefit obligation (ABO) and PBO. Assumptions, including key actuarial inputs and interest rates, will also be covered. Lastly, the chapter covers relevant health care legislation and reform, and how such regulation impacts the measurement of relevant costs and obligations.
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