Under some defined benefit pension plans (typically foreign plans), the actuarial present value of benefits to which an employee is entitled if the employee terminates immediately may exceed the actuarial present value of benefits to which the employee is entitled at expected date of separation based on service to date. For example, the provisions of the Italian severance pay statute require that, in most cases, the benefit an employee has accrued for service to date is payable immediately upon separation. The undiscounted value of that benefit payable currently would exceed the actuarial present value of that benefit if payment is estimated to occur at the employee's expected termination date. Another example arises in the United Kingdom where legislation requires that deferred vested benefits of terminated employees be statutorily revalued from date of separation to normal retirement age. If the vested benefit obligation (VBO) is determined assuming employee termination at the measurement date, that VBO could exceed the accumulated benefit obligation (ABO) if that obligation is measured giving consideration to a statutory revaluation only after the employee's expected date of termination. The issue is whether the VBO is the actuarial present value of the vested benefits to which the employee is entitled if the employee separates immediately (Approach 1) or the actuarial present value of the vested benefits to which the employee is currently entitled but based on the employee's expected date of separation or retirement (Approach 2). Copyright © 1988, Financial Accounting Standards Board Not for redistributio
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