Vested Benefit Obligation (VBO) Definition

Definition

The word vested benefit obligation denotes the part of the accumulated benefit obligation that employees could receive no matter of their continuing involvement in the organizations retirement program. An organizations vested benefit liability (VBO) is just one of 3 strategies to figure obligations or expenses related to retirement plans. One additional measures comprise accumulated benefit obligations (ABO) and projected benefit obligations (PBO).

Explanation

Companies provide employees with a retirement plan included in a bigger collection of job benefits. The FASB Statement of Financial Accounting Standards No. 87 requires firms to quantify and disclose retirement obligations in addition to the operation and financial state of their aims at the conclusion of every accounting period. Broadly speaking, there are 3 methods for the step, for example: assembled, vested, and also projected benefit obligations.

Also called VBO, the vested benefit obligation could be that the part of the accumulated benefit obligation that employees deserve, and can receive, even when they no longer engage in the business ‘s retirement program. By way of instance, the vested benefit obligation exists if the worker is fired or resigns from the employer before attaining the retirement policy ‘s normal retirement age.

The Employee Retirement Income Security Act (ERISA) of 1974 requires firms to vest gains with one of the next two strategies:

  • Pension advantages should completely vest in five Decades or not; rather
  • A corporation may opt to vest 20 percent of the employee’s retirement gains in three decades or not, subsequently vest still another 20 percent annually before employee is 100% vested from this app after seven decades of service.