How does discount rate affect pension liability?

Pension liabilities are highly duration-sensitive (duration 15-20 years). A 1% increase in the discount rate reduces PBO by 15-20%. This is why pension deficits fell sharply when interest rates rose in 2022.

How is pension deficit treated in EV/equity bridge?

The pension deficit (unfunded PBO) is treated like debt — deducted from enterprise value to reach equity value. Some analysts use the full PBO, others use just the net deficit (PBO minus pension assets).

Pension Liability & Funded Status Calculator

Calculate defined benefit pension liability (PBO), funded status, and sensitivity to discount rate and salary growth assumptions. Analyze pension deficit impact on enterprise value, and calculate service cost and interest cost for P&L.

Principal ($)

Annual Rate (%)

Years

Compounding / Year

$ Finance Disclaimer: These calculators are for educational and illustrative purposes only. Results do not constitute financial advice. Consult a licensed financial advisor before making investment or borrowing decisions.

How to Use

Enter the values for the scenario you are assessing. Calculate defined benefit pension liability (PBO), funded status, and sensitivity to discount rate and salary growth assumptions. Analyze pension deficit impact on enterprise value, and calculate service cost and interest cost for P&L. Use the pension liability result to inform your calculation.

Pension Liability & Funded Status Calculator

How to Use

Frequently Asked Questions

How does discount rate affect pension liability?

How is pension deficit treated in EV/equity bridge?