Accumulated benefit obligation

An accumulated benefit obligation is the present value of an employee’s pension, based on the employee’s accumulated work to date. The value of future changes in a person’s compensation is not considered. Since a person continuing to work will likely experience several increases in pay over the term of his employment, this means that the accumulated benefit obligation is lower than the pension obligation that will eventually be payable to an employee.

The accumulated benefit obligation can be a significant liability of a business, and so is inspected by an investor or lender as part of the due diligence process when examining the obligations of an organization.

Related Courses

Accounting for Retirement Benefits