How do we measure the company’s obligation for other postretirement benefits?
There are two ways:
1. The expected postretirement benefit obligation (EPBO)
2. The accumulated postretirement benefit obligation (APBO)
The expected postretirement benefit obligation (EPBO) is the estimate of the present value of the total postretirement benefits expected to be received by plan participants. The EPBO doesn’t appear on the financial statements but is used in calculating the APBO and postretirement benefit expense.
The accumulated postretirement benefit obligation (APBO) is the portion of the EPBO attributable to employee service to date. The APBO is netted with plan assets and reported on the balance sheet as a liability (if the APBO is greater than plan assets) or an asset (if the APBO is less than plan assets).
The APBO is equal to the EPBO times an attribution factor:
APBO = EPBO * fraction attributed to service to date
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