[Verse 1] There's a promise made to workers every day When they retire, their pension's on the way But behind the scenes, there's math we need to know How much we owe and where the money goes The company promises benefits ahead Defined benefit plans, security instead Of hoping market returns will be enough They guarantee the payout, that's the stuff [Chorus] PBO and plan assets, that's the key Pension benefit obligation, follow me Assets in the trust fund, set aside Funded status shows us, are we qualified Balance sheet will tell the story true Liability or asset, me and you PBO and plan assets, don't forget The funded status shows us where we're at [Verse 2] Present value of what we'll pay tomorrow That's the PBO, no need to borrow Calculate with service cost each year Interest cost accumulates, crystal clear Plan assets sit in trust funds, growing strong Invested wisely, helping all along Expected return builds up the pot But actual return shows what we've really got [Chorus] PBO and plan assets, that's the key Pension benefit obligation, follow me Assets in the trust fund, set aside Funded status shows us, are we qualified Balance sheet will tell the story true Liability or asset, me and you PBO and plan assets, don't forget The funded status shows us where we're at [Bridge] When plan assets exceed the obligation We've got an asset, celebration But when PBO is larger than our fund Liability shows up, we're not done Prior service costs and actuarial gains Make the calculation harder to explain But funded status keeps it crystal clear Subtract PBO from assets, year by year [Verse 3] On the balance sheet, it's plain to see Net pension asset or liability If funded status positive, asset side If negative, liability can't hide The pension expense flows through income too Service cost and interest, tried and true Expected return reduces what we show But that's a different song for you to know [Final Chorus] PBO and plan assets, that's the key Pension benefit obligation, follow me Assets in the trust fund, set aside Funded status shows us, are we qualified Balance sheet will tell the story true Liability or asset, me and you PBO and plan assets, now you know The funded status shows which way to go [Outro] Pension accounting doesn't have to scare With PBO and assets, you'll prepare The balance sheet to show the funded state Your CFA knowledge will be truly great
← Deferred Tax Valuation Allowances | Pension Expense Components and Analysis →