A pension benefit obligation is the present value of retirement benefits earned by employees. The amount of this obligation is determined by an actuary, based on a number of assumptions, including the following:
Estimated future pay raises
Estimated employee mortality rates
Estimated interest costs
Estimated remaining employee service periods
Amortization of prior service costs
Amortization of actuarial gains or losses
The amount of this liability is then reduced to its present value to derive the pension benefit obligation. This amount is then compared to the current funding of a plan to determine how much additional funding is needed. This examination is useful for determining the future payout obligations of a business.