Vested Benefit Obligation (VBO)

Definition of Vested Benefit Obligation (VBO)

Vested benefit obligation (VBO) alludes to the actuarial present value of the pension plan that has been earned by employees and is one measure of a company's pension fund liability.

Figuring out Vested Benefit Obligation (VBO)

Vested benefit obligation (VBO) is one of three methodologies firms use to measure and disclose pension obligations as well as the performance and financial condition of their plans toward the end of each accounting period — as they are required to under FASB Statement of Financial Accounting Standards No. 87. The other two measures are the company's accumulated benefit obligation and projected benefit obligation.

The VBO is the portion of the accumulated benefit obligation that employees will receive no matter what their proceeded with participation in the company's pension plan. This is the benefit that has vested in employees — rather than the accumulated benefit obligation, which addresses the current value of any benefits, regardless of whether vested.

The Employee Retirement Income Security Act (ERISA) of 1974 expects companies to vest benefits utilizing one of the accompanying two methodologies:

• Pension benefits must completely vest in five years or less; then again
• A company can decide to vest 20% of the employee's pension benefits in three years or less, then, at that point, vest another 20% each year until the employee is 100% vested in the program following seven years of service.

Since least vesting requirements are generally five years, the values of the vested benefit obligation and accumulated benefit obligation are exceptionally close in most pension plans. While the ABO and VBO values are required to be disclosed at fiscal year-end, in situations where the values are practically comparative, companies' financial statements show the ABO value and state that the VBO and ABO values are not tangibly unique.