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Chapter 22 Accounting

M

mammam87

Member
Hello

I don't quite understand the relationship between the answer in question 22.5 to the question itself. The question asks about a funding valuation, while the answer talks about PBO/ABO which is usually used for FAS87.

Also from what I understand, PBO and ABO both include non-accruing benefits, and that death in service lump sum benefit could be a non-accruing benefit (i.e. not related to service). So why is it that in the solution to Q 22.5, no allowance is made for death in service lump sums in PBO or ABO?

Thanks!
 
Accounting

Hi mammam

1) I think the writer here was just using PBO and ABO as a shorthand for the liabilities calculated on the PU and CU methods respectively. This is not unreasonable given the comment immediately before the question, although I agree that PUAL / CUAL would probably be better notation to use.

2) We're talking about funding in the solution (see 1 above) and it's reasonable for funding to allow for the insurance cost of death in service benefits separately rather than in the PU (or CU) Actuarial Liability.

Hope this helps

Stuart Underwood
ActEd Tutor
 
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