The term projected benefit obligation refers to the present value of the retirement benefits earned by employees, using an estimate of future compensation levels. A company's projected benefit obligation (PBO) is one of three ways to calculate expenses or liabilities associated with pension plans. The other measures include accumulated benefit obligations (ABO) and vested benefit obligations (VBO).
Projected Benefits Obligation, Start of Period
+ Service Costs
+ Interest Costs
+ Amortization of Prior Service Costs
+ Or - Amortization of Actuarial Gains or Losses
- Benefits Paid to Retirees
= Projected Benefit Obligation, End of Period
Companies provide employees with a pension plan as part of a larger array of employment benefits. The FASB Statement of Financial Accounting Standards No. 87 requires firms to measure and disclose pension obligations as well as the performance and financial condition of their plans at the end of each accounting period. Generally, there are three approaches to this measure, including: accumulated, vested, and projected benefit obligations.
Also known as PBO, the projected benefit obligation is the present value of the retirement benefits earned by plan participants. The calculations involved in determining a company's obligation under a defined benefit plan are complex and require the skill of an actuarial to perform. When calculating the funded status of a pension, the liabilities of the plan (PBO) are compared to the plan's assets. Generally, the factors that can influence this projection include:
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