What is the projected benefit obligation (PBO)?

The projected benefit obligation (PBO) is indeed calculated as the accumulated benefit obligation (ABO) plus the present value of future wage and salary increases. PBO represents the total amount an employer expects to pay to employees for benefits that have been earned, considering both their current salary and the impact of future salary increases on the pension benefits.

Using future wage increases in the calculation is crucial, as it more accurately reflects the obligations the employer has regarding future compensation and the associated benefits. This projected approach acknowledges that as employees continue to work and potentially receive raises, the amounts payable under the pension plan will also change, reflecting a more comprehensive liability for the employer.

The other options do not encompass the full scope of the PBO. For instance, assessing benefits without consideration for wage increases does not capture the future obligation accurately and may understate the true liability. Focusing solely on historical costs fails to account for future salary adjustments, making it too narrow a viewpoint. Lastly, while PBO includes pension liabilities associated with employees, characterizing it as exclusively for employees ignores other potential elements of pension plans, such as beneficiaries or retirees. Hence, the approach taken in option A is the most comprehensive and accurate representation of the PBO.