I would take it take it from the start & see what i have understood
Decomposing the pension obligation
1) Inactive. Two parts here. a) Retirees - retired & currently receiving benefits b) Deferreds - Not retired, but not working in the company anymore. Company is owing their future benefits. Benefits are fixed then nominal bond portfolio.
2) Active - working with the company. Obligation can be decomposed into two parts. a) For past services. Known so Part B (deffereds) + this part = Accrued benefits. Accrued but not yet started paying off.
b) Future services (this is where the problem of understanding is) - are the benefits attributed to (i) future wages to be earned, (ii) future services to be rendered, and (iii) future entrants into the plan.
(i) Futures wages to be earned - this is current wages plus _ X% growth. _ If X% is known (assumed-provided by actuary) future benefits could be ascertained. PV of this future wage liability + Accrued benefits = Projected benefit Obligations (PBO)
(ii) Future entrants into the plan - Not known hence not modeled
(iii) Future services to be rendered - number of years in futures current - active employees will continue to work. IMO, here the company would pay benefits to these employes when they retire based on two things - a)length of service b) salary history at the time retirement. Say the formula company adopted is
- X % multiplied to No of years of services of their avg of final last 3 year’s salary
- Say 2% X 10 years x Average pay = 20% of the final salary as benefit every year
Since we neither know with certainity the year of services nor the final pay withdrawn by these employee, its difficult to model them. Also future services of future entrants is not known.