Accumulated benefit obligation (ABO) – definition and meaning

Accumulated Benefit Obligation (ABO) is a measurement of the liability of a company’s pension plan, assuming that the plan will be immediately terminated.

The OECD Glossary of Statistical Terms defines ABO as:

“the actuarial present value of benefits, vested and non-vested, attributed to the pension formula to employee service rendered to a particular date, based on current salaries.”

What it essentially calculates is how much money would be needed to pay currently retired employees in pension benefits, in addition to the amount of benefits earned by current employees – given their salaries and time working for the company.

Accumulated Benefit Obligation does not take future salary increases into account. In contrast, Projected Benefit Obligation (PBO) does include the effect of future rises in pay.

According to Arizona State University, liabilities in pension books come in two forms: accumulated benefit obligation and projected benefit obligation.

Accumulated benefit obligation is a measurement of pension liability taking into account the benefits for vested and non-vested employees at current salaries.

Projected benefit obligation, on the other hand, takes into account benefits for vested and non-vested employees, included any future increases in pay.