Sachs Brands' defined benefit pension plan specifies annual
retirement benefits equal to: 1.3% × 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 $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%. (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.)
Answer 1)
Annual retirement benefits at the beginning of 2018 = 1.6%*Service years*final year's salary
= 1.3%*14 yrs*$310,000 = $56,420
Present value of retirement benefits as of the retirement date = $47,040*PVAF(6%, 18 yrs)
= $56,420*9.4 = $530348
Projected Benefit obligation at the beginning of 2018 = $530348*PVF(6%, 21 yrs) (from 2018 to 2038)
= $530348*0.2942= $156028
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