25 April 2022 9:02

How do you calculate projected benefit obligation?

How to Calculate Projected Benefit Obligation

  1. Find the funded status of the pension plan on the company’s balance sheet. …
  2. Determine the fair value of the pension plan’s assets. …
  3. Subtract the pension plan’s funded status from the fair value of the plan’s assets to determine the projected benefit obligation.

How is pension benefit obligation calculated?

Subtract the pension plan’s funded status from the fair value of the plan’s assets to determine the projected benefit obligation. In our example, $1,100 minus $100 equals $1,000.

Is pension benefit obligation a current liability?

Under both IFRS and US GAAP, companies must report the difference between the defined benefit pension obligation and the pension assets as an asset or liability on the balance sheet. An underfunded defined benefit pension plan is shown as a non-current liability.

What is the duration of the pension obligation?

The typical pension plan has a duration of about 15. Considering convexity, the typical pension plan has a duration that is less than 15 for interest rate increases and greater than 15 for interest rate decreases. The duration for active participants is typically longer than the duration for retired participants.

What is pension obligation risk?

A pension risk transfer is when a defined-benefit pension provider seeks to remove some or all of its obligation to pay guaranteed retirement income or post-retirement benefits to plan participants.