How do you calculate projected benefit obligation?
How to Calculate Projected Benefit Obligation
- Find the funded status of the pension plan on the company’s balance sheet.
- Determine the fair value of the pension plan’s assets.
- Subtract the pension plan’s funded status from the fair value of the plan’s assets to determine the projected benefit obligation.
What is a projected benefit obligation?
A projected benefit obligation (PBO) is an actuarial measurement of what a company will need at the present time to cover future pension liabilities. Projected benefit obligation (PBO) assumes that the plan will not terminate in the foreseeable future and is adjusted to reflect expected compensation in the years ahead.
Is defined benefit obligation and projected benefit obligation the same?
Accumulated benefit obligation (ABO) is the 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.
What type of account is projected benefit obligation?
A projected benefit obligation (PBO) is the estimated present value of an employee’s pension, under the assumption that the employee continues to work for the employer. This information is needed by the employer to account for a pension liability, but is only needed when the pension is of the defined benefit variety.
How is the projected benefit obligation ( PBO ) calculated?
The PBO is usually prepared and periodically updated by a third-party actuarial service. The calculation of the PBO takes into account a number of factors, including assumed increases in employee pay in the future, which will increase the amount of the pension liability.
How is the projected benefit obligation unwinded?
The projected benefit obligation is unwinded each period by recognizing interest cost on the obligation which increases both the PBO balance and the pension expense. Interest cost equals the product of opening PBO and the discount rate. OBP Ltd. had a PBO of $400 million as at 1 January 20X1.
What is the interest rate on a projected benefit obligation?
The interest rate is 8% and the company contribution an amount of $30 million to the fund. The fresh actuarial estimate of PBO as at 31 December 20X1 is of $415 million. Reconcile the opening PBO with closing PBO. The opening projected benefit obligation is $400 million.
How is projected benefit obligation calculated in IFRS?
Projected benefit obligation (PBO) is a term used primarily in US GAAP. In IFRS, it is called present value of defined benefit obligation (PVDBO). PBO is estimated by actuaries by applying complex statistical modeling. Projected benefit obligation (PBO) at the start of a year is reconciled with the PBO at the end of the year as follows:
