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Archive for March 27th, 2008

Pension ABO

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pension abo

Despite being clearly required by published accounting standards, not all sponsors of defined benefit pension plans disclosed the plans’ accumulated benefit obligation (ABO) in corporate financial statements. The ABO differs from the projected benefit obligation (PBO), in that the ABO does not include the value of future compensation with respect to benefits attributable to past employment.

For companies among the S&P 500 that did make the required disclosures, this graph shows ABO, PBO, and the market value of assets (MVA) for fiscal years ending in 2003-2007. On the basis of a reasonable estimate of the ABO for companies that ignored the accounting standards, this represents 94-95% of the total values for all defined benefit pensions maintained by S&P 500 employers.

As noted in previous posts, these numbers include foreign pensions, which on average are typically less well-funded than U.S. pensions, and supplemental executive retirement plans, which are unfunded. If those two groups of plans were segregated out of the data, the overall ABO funded status picture for qualified U.S. pensions would appear more favorable than the picture drawn by this chart. At the same time, as also has previously been noted, pension plans have lost significant ground during the early months of 2008 from the double whammy of declining interest rates, which boost the value placed on the ABO and PBO, and poor investment returns.

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Written by macheide

27 March 2008 at 4:37 pm

Posted in άctuary