Question

56

Sachs Brands' defined benefit pension plan specifies annual retirement benefits equal to: 1.3% x service years x final year's salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2004 and is expected to retire at the end of 2038 after 35 years' service. Her retirement is expected to span 18 years. Davenport's salary is $81,000 at the end of 2018 and the company's actuary projects her salary to be $235,000 at retirement. The actuary's discount rate is 7%. (FV of $1, PV of $1, FVA of $1 PVA of $1, FVAD of $1 and PVAD of $I1) (Use appropriate factor(s) from the tables provided.) Required: 2. Estimate by the projected benefits approach the amount of Davenport's annual retirement payments earned as of the end of 2018 3. What is the company's projected benefit obligation at the end of 2018 with respect to Davenport? (Do not round intermediate calculations. Round your final answer to nearest whole dollar.) 4. If no estimates are changed in the meantime, what will be the company's projected benefit obligation at the end of 2021 (three years later) with respect to Davenport? (Do not round intermediate calculations. Round your final answer to nearest whole dollar.) 2. Annual retirement payments 200 Projected benefit obligation 2018 3. $ 7 4. Projected benefit obligation 2021 3 Sachs Brands' defined benefit pension plan specifies annual retirement benefits equal to: 1.2% x service years x final year's salary payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2004 and is expected to retire at the end of 2038 after 35 years' service. Her retirement is expected to span 18 years. Davenport's salary is $80,000 at the end of 2018 and the company's actuary projects her salary to be $230,000 at retirement. The actuary's discount rate is 6%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. What is the company's projected benefit obligation at the beginning of 2018 (after 14 years' service) with respect to Davenport? (Do not round intermediate calculations. Round your final answer to nearest whole dollar.) 2. Estimate by the projected benefits approach the portion of Davenport's annual retirement payments attributable to 2018 service. 3. What is the company's service cost for 2018 with respect to Davenport? (Do not round intermediate calculations. Round your final answer to nearest whole dollar.) 4. What is the company's interest cost for 2018 with respect to Davenport? (Do not round intermediate calculations. Round your final answer to nearest whole dollar.) 5. Combine your answers to requirements 1, 3, and 4 to determine the company's projected benefit obligation at the end of 2018 (after 15 years' service) with respect to Davenport. (Do not round intermediate calculations. Round your final answer to nearest whole dollar.) 1. Project benefit obligation 2. Annual retirement payments 3. Service cost 4 Interest cost 5. Projected benefit obligation

Answer 1

Annual retirement payments: 2) 1.3%* 15* $81,000 S15,795 3) Project benefit obligation 2018 =1.3%* 15 * $81,000 $15,795 10.0591 $158,883 0.2584 S41,055 Note Present value of an ordinary annuity of $1 = 10.0591 (n 18, I 7%) Present value of $1 0.2584 (n 20, I 7%) 4) Project benefit obligation 2021 1.3%* 18 * $81,000 $18,954 10.0591 $190,660* 0.3166 S60,363 Note Present value of an ordinary annuity of $1 10.0591 (n 18, I 7%) Present value of $1 0.3166 (n 17, I 7%)

1) Project benefit obligation: =1.2% 14 * $230,000 = $38,640* 10.8276 = $418,378 * 0.2942 S1,23,087 Note: Present value of an ordinary annuity of $1 (n 18, I 6%) 10.8276 Present value of $1 0.2942 |(n 21, I 6%) 2)Annual retirement payments: = 1.2% * 1 * $230,000 S2,760 = 3) Service cost = $2,760 * 10.8276 *0.3118 S9,318 Note: Present value of an ordinary annuity of $1 = 10.8276 (n 18, I 6%) Present value of $1 = 0.3118 (n 20, I 6%) 4) Interest Cost: =$123,087* 6% S7,385 5) Projected benefit obligation (PBO): PBO at the beginning of 2018 $1,23,087 Add: Service cost $9,318 $7,385 Interest cost PBO at the end of 2018 S1,39,790