Sachs Brands\' defined benefit pension plan specifies annual retirement benefits
ID: 2572164 • Letter: S
Question
Sachs Brands' defined benefit pension plan specifies annual retirement benefits equal to: 1.4% × 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 $82,000 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 8%. (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:
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.)
Explanation / Answer
2) Annual retirement benefits = 1.4% × service years × final year's salary, pa Annual retirement benefits = 1.4% × 15 × $240,000 $50,400 3) Present value of the retirement annuity Annual Retirement Benefits $50,400 Rate 8.00% Span of retirement = Period 18 Present value of an ordinary annuity of $1: n = 18, i = 8% 9.3719 Present value of the retirement annuity = $50,400 x 9.3719 $472,343.76 PBO = present value of the retirement benefits Retirement Annuity $472,343.76 Rate 8.00% Period 20 Present value of $1: n = 20, i = 8% 0.21455 PBO = $472,343.76 x 0.21455 $101,341 4) Annual retirement benefits = 1.4% × service years × final year's salary, pa Annual retirement benefits = 1.4% × 18 × $240,000 $60,480 Present value of the retirement annuity Annual Retirement Benefits $60,480 Rate 8.00% Span of retirement = Period 18 Present value of an ordinary annuity of $1: n = 18, i = 8% 9.3719 Present value of the retirement annuity = $60,480 x 9.3719 $566,812.51 PBO = present value of the retirement benefits Retirement Annuity $566,812.51 Rate 8.00% Period 17 Present value of $1: n = 17, i = 8% 0.27027 PBO = $472,343.76 x 0.27027 $153,192
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