In GAAP, pension and postretirement benefit obligation calculation includes vested participants and active participants not currently eligible.

Question

Options

• ATrue
• BFalse

• A
  84% (42)
• B
  16% (8)

Explanation

Under GAAP (ASC 715), the projected benefit obligation (PBO) for pensions and the accumulated postretirement benefit obligation (APBO) for postretirement benefits must include all participants - both vested participants (those who have earned guaranteed benefits) and active participants not yet vested or eligible (those still accruing benefits toward future eligibility). This comprehensive scope ensures the full economic liability is recognized on the balance sheet, not just the portion that is immediately payable.

Option B is incorrect because limiting the obligation only to vested participants would dramatically understate the employer's true liability, violating the matching principle and the goal of full accrual accounting.

Memory tip: Think of the obligation as a snapshot of everyone in the promise - GAAP casts a wide net to capture the whole future cost. If someone is actively working toward a benefit, they count, even if they couldn't collect today. "In the plan = in the obligation."

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