AML

[Anonymous]

I have a question concerning the calculation of the ABO used in determining the additional minimum liability for FAS 87 purposes. Is the ABO simply the PBO without future salary increases or is meant to reflect the obligation the Er would have if the plan were terminated - in Canada certain provinces provide members with grow-in rights when a plan is terminated which are reflected in the calulation of the wind up liability. The inclusion of these rights could lead to an ABO significantly higher than just ignoring future salary increases.

[wheat66]

When I calculate the ABO, I use the Accrued Benefit. I still do the usual ancillary valuations I did in the PBO calcs. I project future service solely for the purpose of eligibility for future early retirement benefits, but still only reflecting the Accrued Benefit. I think this reflects the "grow in" rights you mentioned? I suspect we're concerned mostly with subsidized early retirement bens here; could be some other weird subsidized bens to consider, I suppose.

I think USA rules also require protection of grow in rights upon plan termination (there is an old 1984ish Rev. Ruling about it, I recall).

I've never worked with a plan that had Unpredictable Contingent Event Liabs (right term?) so I don't know about them.

Paragraph 18 of FAS87 does seem to describe a plan termination liability, but I'd bet most actuaries don't do a true plan termination ABO. For example, what if a plan termination would mean immediate cash-out offers for all participants? Would you calculate the ABO reflecting GATT rates pre- and post-ret? I suspect no ones does that. Could lead to large "Charges to Equity"?

[Anonymous]

It should be simply PBO without future salary increases.