is PBO a future value, if actuary value of PBO = 100 million and current pension asset = 100 million, am I right to see the plan is fully funded? Ref: Q4/2006 AM exam
I would add that if the market value of your pension asset is also 100m, then it is safe to say that your pension plan is fully funded.
thx ws, but is PBO often used in FV term or PV term?
PBO is PV of future obligation
PV.
from my LII memory, funded status was Pension Assets - ABO. Can someone confirm that?
^No, funded status is the difference between FMV of asset and PBO.
Funded Status is (Mkt Value or PV of Pension Assets) - (PBO or PV of Pension Liabilities) ABO
ABO - is the value of the pension liabilities if the plan was terminated today and paid out PBO is the present value of future plan liabilities and assumes an ongiong entity (plan). CSK said it best - PBO is the present value of futures liabilities.
hold one the guru is here: PBO is accrued liability (meaning based on past service) but also takes into account future salary increases (but not future service). hence you cant say that it is a ‘future liability’. PBO = ABO plus liability due to future salary increases. word.
Hence my little thingyabobber: ABO
to take it further down VBO
just one more clarifying comment… from a finance perspective (under current accounting rules), a plan is considered fully funded if PBO<=Assets, since the PBO is the liability on the books (ABO used to sort of matter, but not now).
You guys can forget about ABO. FAS87 was amended by FAS158 in 2006/12 and, in short, PBO alone is used. VBO and ABO are no longer used. So, need to think about differential between PBO and FV of plan asset.