I am looking at an annual report from a company, with the goal being to assess the financial standing of their pension plan. I have come across a chart that outlines the companies pension liabilites, expressed as both Projected Benefit Obligations (PBO) and Accumulated Benefit Obligations (ABO).

Under these 2 different models, one shows an under funding of the pension plan for the year, and the other shows an over funding.

My question is, how can I say 'for the year 2017, 'company A underfunded their pension plan' or 'company A over funded their pension plan' if the 2 models show different values? I believe my confusion is in the fact that the year 2017 is over, and so there was a definitive amount that was paid out to retirees who are a part of the pension plan, but I'm having trouble quantifying this with the 2 different models. Any help would be appreciated.

The chart that I'm looking at shows the pension plans total assets, and then expresses over/under funding with respect to both PBO and ABO, but I'm having trouble understanding the PBO aspect for a year that is already completed.

  • According to this Investopedia page, the ABO is the obligation "now" assuming employees are terminated immediately and does not consider future salary increases. The PBO, on the other hand, assumes the pension plan is ongoing and accounts for future salary increases.
    – TripeHound
    Sep 21, 2018 at 10:20

2 Answers 2


Underfunded and overfunded has less to do with how much was paid out that year. What it is measuring is how much is in the fund at the end of the period, compared to how much will be paid out in future years. The PBO method looks at the present value of projected future expenses including things like pay raises and future earnings, while the the ABO method simply looks at the current balance compared to what benefits have been earned by employees to date (not considering future earnings or raises).

So it is entirely possible that these two will give contrasting results, depending on the discount factor used to calculate present value in the PBO method, if the company expects an increase or decrease in earned benefits going forward, etc.


Projected benefit obligations include expected salary increases, but accumulated benefit obligations do not.

Let's say you were a recipient who was expected to retire in two years and receive 1% of your salary, which is currently $50k but expected to grow to $55k. The ABO would be the present value of $5k per year for the expected time between retirement and death while the PBO would be the present value of $5.5k per year for the same period of time.

You may be able to find additional information about the plan by searching the Pension Benefit Guarantee Corporation website: https://www.pbgc.gov. Here is a good example: https://www.pbgc.gov/prac/pg/mpra/teamsters-local-805

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