Sachs Brands defined benefit pension plan specifies annual retirement benefits e
ID: 2541710 • Letter: S
Question
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 $96,000 at the end of 2018 and the company's actuary projects her salary to be $310,000 at retirement. The actuary's discount rate is 6%.
If not 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?
Explanation / Answer
Annual retirement benefits at the end of 2021 = 1.3%*Service years*final year's salary
= 1.3%*18 yrs*$310,000 = $72,540
Present value of retirement benefits as of the retirement date = $72,540*PVAF(6%, 18 yrs)
= $72,540*10.8276035 = $785,434
Projected Benefit obligation at the end of 2021 = $785,434*PVF(6%, 17 yrs*) (*from 2022 to 2038)
= $785,434*0.37136442 = $291,682
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