Pension Benefit Obligation - PBO

What is a 'Pension Benefit Obligation - PBO'

A pension benefit obligation (PBO) is an accounting term used to describe the amount of money a company must pay into a defined-benefit pension plan to satisfy all pension entitlements that have been earned by employees up to that date. The pension benefit obligation (PBO) is calculated by an actuary, who determines the benefits needed through a present value calculation.

BREAKING DOWN 'Pension Benefit Obligation - PBO'

A pension benefit obligation is a calculation of the total amount due to employees in the pension fund for all of the past service completed up to that date. Some of the assumptions an actuary will use to calculate the PBO include, but are not limited to, the estimated remaining service life of employees, salary raises and the mortality rates of employees.

Although a PBO is classified as a liability on the balance sheet, there is considerable criticism about whether it meets the predefined criteria of a liability, which are:

a) There is a responsibility to surrender an asset from the result of the transaction(s) taking place at a specified future date.
b) The company must surrender assets for the liability at some future point in time.
c) The transaction resulting in the liability has already taken place.

RELATED TERMS
  1. Current Service Benefit

    The amount of pension benefit accrued by an employee who had ...
  2. Accumulated Benefit Obligation

    An approximate measure of a company's pension plan liability. ...
  3. Pensionable Service

    The period of service, expressed in a yearly figure, for which ...
  4. Actuarial Basis Of Accounting

    A method used in computing the periodic payments that a company ...
  5. Corridor Rule

    In financial accounting, the corridor rule is a materiality rule ...
  6. Pension Option

    A set of options that a pensioner has in regard to the handling ...
Related Articles
  1. Retirement

    Pension Plans: Pain Or Pleasure?

    Employees have a love/hate relationship with this retirement option.
  2. 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.
  3. Financial Advisors

    How to Advise Clients with Frozen Pensions

    Financial advisors are on the front line in advising clients impacted by a frozen pension. Here's what they need to consider.
  4. Retirement

    How Safe Is Your Pension?

    A 2014 law permits some private pension plans to reduce benefits. How to figure out if your retirement income is endangered.
  5. Financial Advisors

    New 401(k) Pension Rollover Rule: Pros and Cons

    Is the new rule allowing participants to roll their 401(k) balances into pensions a good idea?
  6. Retirement

    7 Signs Your Pension Fund Is In Trouble

    Even if you're lucky enough to have a pension plan, you can't assume it'll pay out.
  7. Retirement

    How Pensions, Social Security Differ

    Both pensions and Social Security provide an income stream to retirees, but they differ widely on how they're structured and funded. Here's the lowdown.
  8. Term

    What are Pension Funds?

    A pension fund is a company-sponsored fund that provides income for employees in retirement.
  9. Financial Advisors

    Pension Advances: What You Should Be Wary Of

    The terms some pension advance firms require can be costly. Here's how to be sure your clients aren't making bad decisions.
  10. Retirement

    Understanding Defined Benefit Pension Plans

    An employer-sponsored retirement plan where employee benefits are based on a formula using factors such as salary history and duration of employment.
RELATED FAQS
  1. Who bears the investment risk in 401(k) plans?

    Who actually bears the investment risk in a pension plan depends on the type of pension plan that is employed. In a broad ... Read Answer >>
  2. The company I am receiving my pension plan from has just filed bankruptcy. Could ...

  3. Are Canadian Pension Plans inflation-protected?

    Learn about the Canada Pension Plan and how it adjusts its contributions and benefits each year for changes in inflation ... Read Answer >>
  4. Can I leave my pension to my spouse when I pass away?

    In most cases, an individual with a pension plan should have the option to leave at least a portion of his or her pension ... Read Answer >>
  5. How does a pension income drawdown work?

    Understand what a pension income drawdown plan is, and learn the current rules governing pension income drawdown plans in ... Read Answer >>
  6. How are Pay As You Go pension plan benefits taxed?

    Discover how the IRS treats pay-as-you-go pension plan benefits that are received as income in retirement, both for Social ... Read Answer >>
Hot Definitions
  1. Physical Capital

    Physical capital is one of the three main factors of production in economic theory. It consists of manmade goods that assist ...
  2. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  3. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  4. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  5. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  6. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
Trading Center