Accumulated Benefit Obligation

AAA

DEFINITION of 'Accumulated Benefit Obligation'

An approximate measure of a company's pension plan liability. The accumulated benefit obligation (ABO) is estimated based on the assumption that the pension plan is to be terminated immediately; it does not consider any future salary increases. This differs from the projected benefit obligation, which assumes that the pension plan is ongoing, and thus accounts for future salary increases.

INVESTOPEDIA EXPLAINS 'Accumulated Benefit Obligation'

Looking over a company's pension accounting can be an important piece of analysis for investors. Pension accounting is an area in which a company can be aggressive in many ways, such as the discount rate used for future pension obligations.

RELATED TERMS
  1. Benefit Allowance

    Money that a company or government agency provides to an employee ...
  2. Pension Fund

    A fund established by an employer to facilitate and organize ...
  3. Pension Benefit Guaranty Corporation ...

    A non-profit corporation that functions under the jurisdiction ...
  4. Pension Protection Act Of 2006 ...

    An act of legislation that makes a large number of reforms to ...
  5. Pension Plan

    A type of retirement plan, usually tax exempt, wherein an employer ...
  6. Pension Shortfall

    A situation in which a company offering employees a defined benefit ...
RELATED FAQS
  1. Why would you use the TTM (trailing twelve months) rather than the data from the ...

    Public companies report their yearly financial statements along with an annual report. However, financial professionals are ... Read Full Answer >>
  2. Why are insurance companies and pension funds considered financial instruments?

    Insurance policies are widely considered to be financial instruments. Pension funds may contain many different types of financial ... Read Full Answer >>
  3. Why is it important for an investor to understand business accounting?

    Investors use financial statements to obtain valuable information used in valuation and credit analysis of companies. Therefore, ... Read Full Answer >>
  4. What are the business consequences of using FIFO vs. LIFO accounting methods?

    If a company uses a first-in, first-out accounting method (FIFO), it's likely that its reported earnings will be higher than ... Read Full Answer >>
  5. How do you analyze inventory on the balance sheet?

    In accounting, inventory represents a company's raw materials, work in progress and finished products. Financial professionals ... Read Full Answer >>
  6. How are contingent liabilities reflected on a balance sheet

    Contingent liabilities need to pass two thresholds before they can be reported in the financial statements. First, it must ... Read Full Answer >>
Related Articles
  1. Retirement

    Keeping Track Of Retirement Plan Assets

    Maintain records of your pension benefits or risk losing them.
  2. Retirement

    The Investing Risk Of Underfunded Pension Plans

    Determine the risk to a company's EPS and financial condition resulting from an underfunded pension plan.
  3. Retirement

    A Primer On Defined-Benefit Pension Plans

    Most of us will rely on a pension plan in the future, so it's best to know the details of the various plans before signing up.
  4. Budgeting

    The Demise Of The Defined-Benefit Plan

    Experts are making bleak predictions for your post-work years. Be prepared and plan for your future.
  5. Investing

    How To Evaluate Pension Risk By Analyzing Annual Costs

    Learn how to assess whether a company's pension plan is posing more risks than what the footnotes indicate.
  6. Options & Futures

    Advanced Financial Statement Analysis

    Learn what it means to do your homework on a company's performance and reporting practices before investing.
  7. Professionals

    How to Fund Retirement with Insurance

    So you've contributed the max to all available retirement vehicles...now what? Consider a permanent life insurance policy (and its fee structure).
  8. Personal Finance

    Should You Track The Cost Of Retirement Income?

    Today, workers face a challenge when saving for retirement, because retirement income is getting more expensive, and the savings are not keeping up.
  9. Fundamental Analysis

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.
  10. Economics

    Explaining Residual Value

    Residual value is a measurement of how much a fixed asset is worth at the end of its lease, or at the end of its useful life.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center