Projected Benefit Obligation (PBO)

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Definition of 'Projected Benefit Obligation (PBO)'

The projected benefit obligation (PBO) is a measure of the present value of a company's future pension obligations. It is calculated by taking the present value of all future benefits that employees are expected to receive, based on their current salaries and expected retirement ages. The PBO is used to determine the amount of funding that a company needs to set aside to meet its pension obligations.

The PBO is a key metric for investors and creditors, as it provides information about a company's financial health. A high PBO can indicate that a company is underfunded for its pension obligations, which could lead to a decline in its financial performance.

The PBO is calculated using a number of assumptions, including the discount rate, the expected salary increases, and the expected retirement ages of employees. These assumptions can have a significant impact on the PBO, so it is important for companies to use realistic assumptions when making their calculations.

The PBO is a dynamic measure, and it will change over time as employees' salaries increase, their retirement ages change, and the discount rate changes. Companies are required to re-calculate their PBO on an annual basis, and they must make adjustments to their pension funding as needed.

The PBO is a complex and important metric, and it is essential for investors and creditors to understand how it is calculated and what it means for a company's financial health.

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