Asked Jan 25, 2020

Name three approaches to measuring benefit obligations from a pension plan and explain how they differ.


Expert Answer

Step 1

Pension: A fixed sum of money receivable in future or after the age of retirement, which the employer has invested during the period of employment for an employee is termed as a pension. This pension is mostly offered to government, public sector and some private sector employees.

Step 2

Three approaches to measuring benefit obligations from a pension plan are as follows:

Vested benefit obligation: Contribution towards the pension fund is decided based on the salary structure to which the beneficiary belongs to. The extra or additional benefits suitable for the pension fund are added to the contribution. It is not necessary that the beneficiary needs to contribute excess funds to the pension fund.

Accumulated benefit obligation: Contribution towards the pension fund is calculated based on a formula that takes into account the service of t...

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