Sachs Brands\' defined benefit pension plan specifies annual retirement benefits
ID: 2572166 • 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 $92,000 at the end of 2018 and the company's actuary projects her salary to be $290,000 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.)
Annual retirement payment
1 project benefit obligation ??? 2Annual retirement payment
??? 3 service cost ??? 4 Interest cost ??? 5 Projected benefit obligation ???Explanation / Answer
Requirement 1
1.4% x 14 x $290,000 = $56,840
$56,840 x 10.82760* = $615,441
$615,441 x .29416** = $181,038
* present value of an ordinary annuity of $1: n=18, i=6% (from Table 4)
** present value of $1: n=21, i=6% (from Table 2)
Requirement 2
1.4% x 1 x $290,000 = $4,060
Requirement 3
$4,060 x 10.82760* = $43,960
$43,960 x .31180** = $13,707
* present value of an ordinary annuity of $1: n=18, i=6% (from Table 4)
** present value of $1: n=20, i=6% (from Table 2)
Requirement 4
$181,038 x 6% = $10,862
Requirement 5
PBO at the beginning of 2018 (end of 2017) $181,038
Service cost: 13,707
Interest cost: $181,038 x 6% 10,862
PBO at the end of 2018 $205,607
1
project benefit obligation
$ 181,038
2
Annual retirement payment
$ 4,060
3
service cost
$ 13,707
4
Interest cost
$ 10,862
5
Projected benefit obligation
$ 205,607
1
project benefit obligation
$ 181,038
2
Annual retirement payment
$ 4,060
3
service cost
$ 13,707
4
Interest cost
$ 10,862
5
Projected benefit obligation
$ 205,607
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.