Question

# The projected benefit obligation was \$100 million at the beginning of the year and \$106 million...

The projected benefit obligation was \$100 million at the beginning of the year and \$106 million at the end of the year. Service cost for the year was \$6 million. At the end of the year, there were no pension-related other comprehensive income accounts. The actuary’s discount rate was 5%.

What was the amount of the retiree benefits paid by the trustee?

Retiree benefits paid is \$5 million.

Explanation:

Opening projected benefit obligation (PBO) = \$100 million

Ending projected benefit obligation (PBO) = \$106 million

Service cost = \$6 million

Interest cost = Opening PBO × Discount rate = \$100 million × 5% = \$5 million

Retiree benefits paid is computed using the equation given below:

Retiree benefits paid = Opening PBO + Service cost + Interest cost - Ending PBO = \$100 million + \$6 million + \$5 million - \$106 million = \$5 million

Hence, the Retiree benefits paid is \$5 million.

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