Sachs Brands\' defined benefit pension plan specifies annual retirement benefits
ID: 2579645 • Letter: S
Question
Sachs Brands' defined benefit pension plan specifies annual retirement benefits equal to: 1.2% × service years × final year's salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 1999 and is expected to retire at the end of 2033 after 35 years' service. Her retirement is expected to span 18 years. Davenport's salary is $90,000 at the end of 2013 and the company’s actuary projects her salary to be $280,000 at retirement. The actuary's discount rate is 8%.
2) Estimate by the accumulated benefits approach the amount of Davenport's annual retirement payments earned as of the end of 2013.
Annual retirement benefits = ?
3) What is the company’s accumulated benefit obligation at the end of 2013 with respect to Davenport?
Accumulated benefit obligation = ?
4) If no estimates are changed in the meantime, what will be the accumulated benefit obligation at the end of 2016 (three years later) when Davenport’s salary is $115,000?
Accumulated benefit obligation = ?
Explanation / Answer
No. of Years of service at the end of 2013(A) 15 Salary at the end of 2013(B) 90000 1.2 © Given in question 1.20% 2. the amount of Davenport's annual retirement payments earned as of the end of 2013.: A*B*C (D) 16200 A 3. the company’s accumulated benefit obligation at the end of 2013 Present Value of Ordinary Annuity (8%, 18 Years of retirment) 9.37189 B Present Value of one at 8%, 20 years of remaining service 0.2145482 C Acculumated Benefit Obligation -2013 end A*B*C 32,573.70 4. the company’s accumulated benefit obligation at the end of 2016 No. of Years of service at the end of 2016(A) 18 Salary at the end of 2016(B) 115000 1.2 © Given in question © 1.20% A*B*C (D) 24840 (1) Present Value of Ordinary Annuity (8%, 18 Years of retirment) 9.37189 (2) Present Value of one at 8%, 17 years of remaining service 0.2145482 (3) Acculumated Benefit Obligation -2013 end 1*2*3 49,946.34
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