Pension Benefit Obligation - PBO

A A A

DEFINITION

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

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 and Canada that ...
  2. Accumulated Benefit Obligation

    An approximate measure of a company's pension plan liability. The accumulated ...
  3. Actuary

    A professional statistician working for an insurance company. They evaluate ...
  4. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities and shareholders' ...
  5. Liability

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

    1. The age until which a person is expected to live. 2. The remaining number ...
  7. Pension Plan

    A type of retirement plan, usually tax exempt, wherein an employer makes contributions ...
  8. Present Value - PV

    The current worth of a future sum of money or stream of cash flows given a specified ...
  9. Defined-Benefit Plan

    An employer-sponsored retirement plan where employee benefits are sorted out ...
  10. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual retirement account ...
Related Articles
  1. The Investing Risk Of Underfunded Pension ...
    Retirement

    The Investing Risk Of Underfunded Pension ...

  2. 7 Signs Your Pension Fund Is In Trouble
    Retirement

    7 Signs Your Pension Fund Is In Trouble

  3. The Defined-Benefit Plan's Many Problems
    Retirement

    The Defined-Benefit Plan's Many Problems

  4. Pension Plans: Pain Or Pleasure?
    Retirement

    Pension Plans: Pain Or Pleasure?

  5. Can I leave my pension to my spouse ...
    Options & Futures

    Can I leave my pension to my spouse ...

  6. Start Saving With A Roth 401(k)
    Retirement

    Start Saving With A Roth 401(k)

  7. Free On Board
    Professionals

    Free On Board

  8. How Advisors Can Fill The Talent Gap ...
    Retirement

    How Advisors Can Fill The Talent Gap ...

  9. Last-Minute Strategies To Help Pay For ...
    Budgeting

    Last-Minute Strategies To Help Pay For ...

  10. Financial Advisors Need To Seek Out ...
    Retirement

    Financial Advisors Need To Seek Out ...

comments powered by Disqus
Hot Definitions
  1. Cash and Carry Transaction

    A type of transaction in the futures market in which the cash or spot price of a commodity is below the futures contract price. Cash and carry transactions are considered arbitrage transactions.
  2. Amplitude

    The difference in price from the midpoint of a trough to the midpoint of a peak of a security. Amplitude is positive when calculating a bullish retracement (when calculating from trough to peak) and negative when calculating a bearish retracement (when calculating from peak to trough).
  3. Ascending Triangle

    A bullish chart pattern used in technical analysis that is easily recognizable by the distinct shape created by two trendlines. In an ascending triangle, one trendline is drawn horizontally at a level that has historically prevented the price from heading higher, while the second trendline connects a series of increasing troughs.
  4. National Best Bid and Offer - NBBO

    A term applying to the SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities.
  5. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
  6. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
Trading Center