Question

6.) Use the pension formula (including a projection of future salary levels) to determine the retirement benefits earned to date. Write the answer in on the cover sheet. FACTS: The company has a defined benefit plan Preston's salary at the end of 2017 is Retirement expected after Retirement period is expected to be Interest Rate Benefits are calculated as a formula as the product of: Service already provided Percentage Final year's salary is projected to be $ 145,000 30 20 3.5% years of service years years 12 2.2% $ 240,000

Answer 1

The pension benefit formula is the key design feature of defined benefit pensions. The formula can be used to make pensions more or less generous. As such, it is important to understand what it does and how it works.

Step 1 ->pension benefit earned to date= last year salary * years of service * benefit multiplier

= 240000*0.022*12

= 63360 per year

Step 2 -> present value of retirement benefits as of retirement date

interest rate = 3.5%

expected retirement period = 20 years

PV = 14.2123*pension benefit per year

= 14.2123*63360

= 900497

А в с 1 time value pv 1 63360 61217.39 2 63360 59147.24 3 63360 57147.09 4 63360 55214.58 63360 53347.42 6 63360 51543.4 63360 49800.39 8 63360 48116.32 63360 46489.19 63360 44917.1 63360 43398.16 63360 41930.59 63360 40512.65 63360 39142.65 63360 37818.99 63360 36540.09 17 63360 35304.43 1863360 34110.56 1963360 32957.06 20 63360 31842.57 [ 900497.9

Step 3 -> present value of retirement benefits as of current date

interest rate = 3.5%

time = 30 years

900479.9*(discount multiplier)

discount multiplier = 0.1839

PV = 900479.9*0.1839 = 165598.25

discount multiplier calculation is shown below

B4 - E X V f =1/1.0354A4 А 1 time time discounted value 0.966183575 0.9335107 0.901942706 0.871442228 0.841973167 0.813500644 0.785990961 0.759411556 0.733730972 0.708918814 discounted value 0.485570903 0.469150631 0.453285634 0.437957134 0.423146989 0.408837671 0.395012242 0.38165434 0.368748155 0.356278411 30 discount factor 18.39204541 0.684945714 0.661783298 0.639404153 0.61778179 0.596890619 0.576705912 0.557203779 0.53836114 0.52015569 0.502565884