Question

a. Assume Virginia’s annual payments will continue to be $3.8 billion, and that retirees will receive benefits for 20 years on average. Using an assumed rate of return of 7 percent, calculate the liability of the state’s pension plan. The liability is the present value of the future cash payments. (Be aware that the real-world calculation for a state’s pension plan liability involves many more assumptions than just these two.)

b. Assume the annual payments will continue to be $3.8 billion, and that retirees will receive benefits for 20 years on average. Using an assumed rate of return of 5 percent, calculate the liability of the state’s pension plan.(For all requirements, enter your answers in dollars not in billions.)

Gross Pension Liability

a.

b.

Answer 1

a.Gross pension Liability:

Annual Payment	Discount factor @ 7%	Discounted Cashflows
3.8	0.9346	3.6
3.8	0.8734	3.3
3.8	0.8163	3.1
3.8	0.7629	2.9
3.8	0.7130	2.7
3.8	0.6663	2.5
3.8	0.6227	2.4
3.8	0.5820	2.2
3.8	0.5439	2.1
3.8	0.5083	1.9
3.8	0.4751	1.8
3.8	0.4440	1.7
3.8	0.4150	1.6
3.8	0.3878	1.5
3.8	0.3624	1.4
3.8	0.3387	1.3
3.8	0.3166	1.2
3.8	0.2959	1.1
3.8	0.2765	1.1
3.8	0.2584	1.0
		40.3

So, Gross pension Liability = 40.3 Billion

b.

Annual Payment	Discount factor @ 5%	Discounted Cashflows
3.8	0.9524	3.6
3.8	0.9070	3.4
3.8	0.8638	3.3
3.8	0.8227	3.1
3.8	0.7835	3.0
3.8	0.7462	2.8
3.8	0.7107	2.7
3.8	0.6768	2.6
3.8	0.6446	2.4
3.8	0.6139	2.3
3.8	0.5847	2.2
3.8	0.5568	2.1
3.8	0.5303	2.0
3.8	0.5051	1.9
3.8	0.4810	1.8
3.8	0.4581	1.7
3.8	0.4363	1.7
3.8	0.4155	1.6
3.8	0.3957	1.5
3.8	0.3769	1.4
		47.4

So, Gross pension Liability = 47.4 Billion

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