Question

Bernard Corporation has an unfunded postretirement health care benefit plan. Life insurance and medical care benefits are provided to employees who render 12 years of service and attain age 55 while in service to the company. At the end of 2018, Teri Clark is 35. She was hired by Bernard five years ago at age 30 and is expected to retire at the age of 62. The expected postretirement benefit obligation for Teri is $44,000 at the end of 2018 and $54,000 at the end of 2019.

Required:
Calculate the accumulated postretirement benefit obligation at the end of 2018 and 2019 and the service cost for 2018 and 2019 pertaining to Teri.

Answer 1

Sol:

Calculation of Accumulated postretirement benefit obligation and Service cost for the year 2018 and 2019.

Accumulated postretirement benefit obligation

2018	$ 44000* 5/25	$                8,800.00
2019	$ 54000*6/25	$              12,960.00
25 year contribution period ( age 30-55)

Service cost

2018	$ 44000*1/25	$ 1,760.00
2019	$ 54000*1/25	$ 2,160.00