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Projected Benefit Obligation (PBO) Definition

Definition

The word projected benefit liability refers to this present importance of their retirement benefits earned by employees, employing a quote of future reimbursement levels. An organizations projected benefit obligation (PBO) is just one of 3 strategies to figure obligations or expenses related to retirement plans. One additional measures comprise accumulated benefit obligations (ABO) and vested benefit obligations (VBO).

Calculation

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

Explanation

Companies provide employees with a retirement plan included in a bigger collection of job benefits. The FASB Statement of Financial Accounting Standards No. 87 requires firms to quantify and disclose retirement obligations in addition to the operation and financial state of their aims at the conclusion of every accounting period. Broadly speaking, there are 3 methods for the step, for example: assembled, vested, and also projected benefit obligations.

Also called PBO, the projected benefit obligation is the present price of their retirement benefits made by plan participants. The research associated with determining an organizations responsibility under a defined benefit plan are complex and require the art of an actuarial to carry out. When calculating the funded status of a retirement, the obligations of this master plan (PBO) are in relation to this plan’s assets. Generally, the factors that can affect this projection comprise:

  • Service Costs (increases responsibility ): the current value of this projected retirement benefits brought by the master plan ‘s participants.
  • Interest Costs (increases responsibility ): the yearly interest accrued at first balance of this projected benefit liability.
  • Amortization of Prior Service Costs (increases responsibility ): the systematic comprehension of a retirement ‘s accountability caused by the retroactive change to the master plan ‘s formula.
  • Amortization of Actuarial Gains or Losses (increases or reduces obligation): that the growth or reduction to a business ‘s quote of these projected benefit liability as a consequence of the periodic re evaluation of premises used when calculating the power.
  • Benefits Paid to Retirees (reduces liability ): while some of these above mentioned facets can raise the organizations projected benefit obligation, the responsibility is significantly paid down when they’re paid for customers.