How are actuarial gains and losses calculated for a pension benefit obligation?
Gains and losses are based on the difference between the actual pension payments made by the company vs the expected amount (per the actuary). If the company has actual payments that are less than the expected payment, that represents an actuarial gain. If actual payments are higher than the expected payment, that represents and actuarial loss.
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How do actuarial gains and losses impact the pension benefit obligation?
As you can see in the visual below, actuarial gains decrease the PBO while losses increase the PBO. Actuarial gains and losses typically arise when the actuary changes the estimates used to calculate the PBO.
How to calculate the project benefit obligation?
Basically, you need to roll forward the obligation balance from the beginning of the year (i.e. which equals end of prior year), and then factor in the items listed in the rollforward below. That will get you to your ending PBO, and that is what is recorded on the balance sheet as the ending liability […]