FASB calculations

[FAPInJax]

Consider the following data for a participant (with completely made-up numbers that may not make sense):

Monthly Accrued Benefit BOY: $100.00

ABO last year: $2,000.00

PBO last year: $5,000.00

Termination date: October of year, after benefits have been earned

Vesting %: 20% BOY, 40% at termination

Monthly Accrued Benefit @ term: $150.00

ABO, PBO end of year, $2,500.00

ignoring partial vesting:

Questions

1) what benefit is used for the ABO increase for the year? $50? Or $-40? ( $150.00*.4 - $100*1) Is there any guidance in FAS 87 as to whether you can have a negative ABO increase?

2) What is the PBO and ABO as of the valuation date of December 31st (after the October termination) for this particular individual? $2,500, or 40% of $2,500? Any guidance on this?

I believe these questions are dealt with under FASB 88 - correct?? Somehow, the prior ABO/PBO numbers are adjusted so that at the end of the current year (when the vested accrued benefit is only 60.00).

Any takers on the proper method of calculating the decrease?

[SoCalActuary]

I will start with the presumption that it is the actuary's judgement.

If the actuary determines that the vested account balance is the proper measure of the liability,

then you have a gain on experience. If the benefit is actually paid out on the 40% vesting, then

I believe you invoke the FAS 88 settlement gain. In that case, you would measure the change

in pbo and the effect on plan assets together, to arrive at the amount of gain. You did not mention

the service cost, so I will make an assumption here.

If the initial pbo was $5,000, then the presumed funding benefit would have been $250 to achieve

the same ratio as you abo / accrued benefit. Service cost would then have been about $2,500

(all speculation on my part.)

The expected pbo would be (5,000 + 2,500) x (1+i). The actual pbo and abo would be $1,000

on the vested balance.

If the $1,000 is paid by year end, then the entire gain is a settlement gain. Otherwise, it is a gain that

gets aggregated with all other gains.

The only way I would reconsider this is by judging the possibility of rehire before a settlement is made.

Then I might consider measuring the abo & pbo on the full accrued benefit.