Question

• Describe what factors contribute to the pension benefit obligation. Discuss the effect of the increase or decrease on the PBO. How is this change reported in the financial statements and what other accounts are affected? Provide an example from a publicly-traded company.

Answer 1

Answer:

What is Projected Benefit Obligation (PBO)?

A Projected Benefit Obligation (PBO) is an actuarial estimation of what an organization will require right now to cover future pension liabilities. This estimation is utilized to decide what amount must be paid into a defined benefit pension plan to fulfill all pension privileges that have been earned by representatives up to that date, changed for expected future compensation increments.

KEY TAKEAWAYS

A Projected Benefit Obligation  (PBO) is an actuarial estimation of what an organization will require right now to cover future pension liabilities.

Projected Benefit Obligation  (PBO) accepts that the plan won't terminate within a reasonable time-frame and is acclimated to reflect expected pay in the years ahead.

Actuaries are answerable for utilizing the Projected Benefit Obligation  (PBO) so as to ascertain whether pension plans are underfunded.

How a Projected Benefit Obligation (PBO) Works

Organizations can furnish representatives with various advantages, including a compensation, when they retire from work. The Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards No. 87 states that organizations must measure and reveal their pension obligations, along with the performance of their plans, toward the finish of each bookkeeping/accounting period

A Projected Benefit Obligation  (PBO) is one of three different ways to ascertain costs or liabilities of customary characterized benefit pension plans that consider representative long periods of service and pay to compute retirement benefits.

Subsequently, it considers various variables, including the accompanying:

• The estimated leftover service life of workers
• Accepted compensation rises
• A forecast of worker mortality rates

These certified experts, who have some expertise in the estimation and measurement and the management of risk and vulnerability, decide the advantages required through a current worth calculation.