3 Sachs Brands\' defined benefit pension plan specifies annual retirement benefi

Question

3 Sachs Brands' defined benefit pension plan specifies annual retirement benefits equal to: 1.6% service years 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 $90,000 at the end of 2018 and the company's actuary projects her salary to be $240,000 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 $1 (Use approprlate factor(s) from the tables provlded.) 20 points Requirec 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 Intermedlate calculatlons. 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 Intermedlate calculations. Round your final answer to nearest whole doller.) 4. What Is the company's Interest cost for 2018 with respect to Davenport? (Do not round Intermedlate calculations. Round your final answer to nearest whole doller.) 5. Comblne 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 Intermedlate calculatlons. Round your finel answer to nearest whole doller.) eBook Ask Print References 1. Project benefit obligation 2. Annual retirement payments 3. Service cost 4. Interest cost 5. Projected benefit obligation

Explanation / Answer

SOLUTION

1. Project benefit obligation-

1.6% * 14 years * $240,000 = $53,760

$53,760 * 10.05909* = $540,777

$540,777 * 0.24151** = $130,603

*present value of an ordinary annuity of $1: n=18, i=7% = 10.05909

** present value of $1: n=21, i=7% = 0.24151

2. Annual retirement payments=

1.6% * 1 * $240,000 = $3,840

3. Service cost

$3,840 * 10.05909* = $38,627

$38,627 * 0.25842** = $9,982

* present value of an ordinary annuity of $1: n=18, i=7% = 10.05909

**present value of $1: n=20, i=7% = 0.25842

4. Interest cost

= $130,603 * 7% = $9,142

5.

Amount ($) PBO at the beginning of 2018 130,603 Service cost 9,982 Interest cost ($130,603 * 7%) 9,142 PBO at the end of 2018 149,727

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