Pension Benefit Obligation - PBO

AAA

DEFINITION of 'Pension Benefit Obligation - PBO'

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.

INVESTOPEDIA EXPLAINS '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. Certified Employee Benefit Specialist

    A professional designation available in both the United States ...
  2. Accumulated Benefit Obligation

    An approximate measure of a company's pension plan liability. ...
  3. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  4. Actuary

    A professional statistician working for an insurance company. ...
  5. Liability

    A company's legal debts or obligations that arise during the ...
  6. Life Expectancy

    1. The age until which a person is expected to live. 2. The ...
RELATED FAQS
  1. 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 Full Answer >>
Related Articles
  1. Retirement

    Pension Plans: Pain Or Pleasure?

    Employees have a love/hate relationship with this retirement option.
  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

    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.
  4. Retirement

    The Defined-Benefit Plan's Many Problems

    The shift in retirement plan schemes - from defined benefit plans to defined contribution plans - raises some important issues.
  5. Investing Basics

    What are Financial Statements?

    Financial statements are a picture of a company’s financial health for a given period of time at a given point in time. The statements provide a collection of data about a company’s financial ...
  6. Professionals

    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?
  7. Investing

    What's a Debit Note?

    A debit note is a document used by a seller to inform a purchaser of a dollar amount owed. As the name indicates, it is a note from the seller that a debit has been made to the purchaser’s account. ...
  8. Investing

    What's Capitalization?

    Capitalization has different meanings depending on the context.
  9. Investing

    Deferred Tax Liability

    Deferred tax liability is a tax that has been assessed or is due for the current period, but has not yet been paid. The deferral arises because of timing differences between the accrual of the ...
  10. Fundamental Analysis

    The Best 5 Online Accounting Systems For Small Business

    Running a small business can be difficult, but thanks to these online accounting services, taking care of payroll doesn't have to be.

You May Also Like

Hot Definitions
  1. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
  2. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  3. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  4. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  5. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  6. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
Trading Center