Question

Precision Company has a defined benefit pension plan for its employees. Payments are made annually to the pension plan equal to 3% of the employee's highest lifetime salary multiplied by the number of years the employee has been with the company. Marci Clark's salary in 2019 was $75,000. Ms. Clark is expected to retire in 20 years. Her salary is expected to increase at an average rate of 4% each year before she retires. As of the January 1, 2019, Ms. Clark had worked for Precision Company for 12 years.

Question 1

Determine the amount of the annual pension payment that should be used in computing Ms. Clark's accumulated benefit obligation (ABO) as of 1/1/2019.

Question 2

Determine the amount of the annual pension payment that should be used in computing Ms. Clark's projected benefit obligation (PBO) as of 1/1/2019.

Answer 1

Given Data Salary of Ms. Clark in 2019 $75,000 annual growth rate of salary 4% As of Jan 1, 201a she worked for 12 years She is expected to retire in 20 years. Annual pension 3% of employees highest lifetime salary Х number of years worked ABO Accumulated Benefit obligation ABO is estimated based on assumption that the pension is to be terminated immediately. PBO : Projected Benefit Obligation. It assumes that the pension plan future ongoing and thus accounts for Salary Increases. Question- Pension Payment according to ABO as of 1/1/2019 Salary 2019 75,000 $ Jan 1, 2019 = 0.96 x 75,000 Highest salary till 72,000 $

As of 1 111/2019, she worked with Company for 12 years Annual pension 0.03 72,000 x 12 25, 920 $ Pension according to ABO # 25,920 Qustion - 2 Pension according to PRO as of 1/1/2019 Salary in 2019 = 75,000 $ She still has a service of 20 years So her highest salary will be in 2039 2019 75,000 2020 78,000 2021 81, 120 2022 84,364 2038 158,013 164 , 334 & 2039

So her Highest salary will be ! $ 164, 334 Annual Pension (PBO). 0.03 x 164, 334 x12 No No 0 $ 59, 160 Pension According to PRO - $ 59, 160 yo NEW) 3