Measuring the Defined Benefit Obligation

Three measures of DB plan liabilities under U.S. GAAP are:

1. Projected Benefits Obligation (PBO) – PBO is the basis for most pension accounting calculations.  PBO represents the actuarial present value of vested and non-vested benefits earned by employees.  PBO includes assumptions of future employee pay increases.
2. Accumulated Benefits Obligation (ABO) – ABO is the same as PBO with one key exception; ABO is based on current salaries and no consideration is given to future salary increases.  Thus, under a pay-related DB plan, ABO < PBO.
3. Vested Benefits Obligation (VBO) – VBO represents only the present value of vested benefits, therefore any future pension obligations for employees not currently vested will be excluded from the VBO calculation.  Under a pay-related DB plan, for companies with both vested and non-vested employees, VBO < ABO < PBO.