# Pension Expense Vs. PBO

Guys im having some trouble linking the two together, is PBO part of Pension Expense? Can someone please tell me how are they linked? I know the calculation of both and they seem to overlap, yet I just can’t put he calculation in perspective! thanks.

I think PBO is only indirectly related to pension expense in that it affects a couple components (e.g., service cost and interest cost).

Pbo is not a part of any expense, it represents a liability to your employees. the increase of pbo = service cost +interest cost creates the expense. so basically pbo is created by adding all the expense amount since inception of the plan Hope I am not wrong

expense = service cost +interest cost service cost= increase in liability caused by another work year for your employees interest cost= the cost caused by passing the liability from a year to another- think of this as cost to transfer pbo from pv(inception of year) to future value(end of year)

PenEx = Interest Cost +Service Cost -EXPECTED RETURN from plan assets +/- Amortization of the prior plan cost +/- Amortization of the G/L due to plan amendments +/- Amortization of the G/L due to the actuarial assumptions Begin_PBO +Interest Cost +Service Cost -Benefits paid +/- G/L due to plan amendments +/- G/L due to the actuarial assumptions ------------------------------------------ End_PBO

ok lets see… Now PBO = SERVICE.C + INT.C - E(ROA) ±(AMORTIZING) - Benefits Paid Pension Expense = SERVICE.C + INT.C - E(ROA) ±(AMORTIZING) So it seems the only deference is the benefits paid…!

PBO doesn’t have the expected return on the plan assets. PBO is a pure liability figure, you can’t net it with the asset return. PenEx can’t subtract the benefits paid.

I think PBO is used for the balance sheet side, i.e. its used to calculate the Pension Assets or Liabilities… A/L PENSION = FVPA - PBO ±(AMORT) so it dose not affect pension expense directly, only through the AMORT of prior service adjust.

I was just talking about the base scenario nothing paid accrued or return on plan assets…

and the expected return on plan asset