Question

I am having confusion about PBO and ABO accounting.

Could you explain me what they are and how can i distinguish each of them?

Can a company have all two ABO and PBO at the same time? Or it’s not allowed to have both?

Thank you,

Answer 1

Accumulated benefit obligation (ABO) is an approximate amount of a company's pension plan liability at a single point in time. ... This differs from the projected benefit obligation (PBO), which assumes that the pension plan is ongoing, and thus accounts for future salary increases.

The projected benefit obligation (PBO) is a pension concept in accounting. The PBO is the present value of an employee's pension. For a small business, the PBO will be an amount the company needs now in its pension plan to cover future pension obligations to its employees.

OR

The projected benefit obligation (PBO) is the present value of both vested and non-vested benefits at the future salary level. The projected benefit obligation is the most comprehensive definition of pension liability and accounting standards require companies to value its pension liabilities by their projected benefit obligations.

The accumulated benefit obligation (ABO) represents the present value of both vested and non-vested benefits determined at the current salary levels.

The only difference between the company's projected benefit obligation (PBO) and its accumulated benefit obligation (ABO) is the value used for the employee's compensation. While the calculation of the ABO uses the employee's current compensation, the PBO uses the employee's projected compensation at retirement.

A company may not be allowed ABO and PBO at the same time.