With respect to pension liabilities, which of the following statements are true?
I. The projected benefit obligation (PBO) is always greater than or equal to the accumulated benefit obligation (ABO).
II. The vested benefit obligation (VBO) is always as least as or as big as the accumulated benefit obligation (ABO).
III. If the PBO is greater than the plan assets, the plan is said to be overfunded.
IV. If the weighted-average assumed discount rate is increased, the PBO will decrease.
A) I, III and IV
B) I and III
C) II and IV
D) I and IV

Question

Quizplus · Accepted Answer

I is true because PBO includes all future salary increases, while ABO only considers vested benefits and no future salary increases. Therefore, PBO is always larger than or equal to ABO. 
IV is also true because higher discount rates reduce the present value of future benefits and therefore result in lower PBO. Hence, If the weighted-average assumed discount rate is increased, the PBO will decrease. 
II and III are false. VBO is always less than or equal to ABO because VBO only includes benefits that are vested (i.e., fully earned), while ABO includes vested and non-vested benefits. If PBO exceeds plan assets, the plan is said to be underfunded, not overfunded.

With Respect to Pension Liabilities, Which of the Following Statements