Sachs Brands’ defined benefit pension plan specifies annual retirement benefits equal to: 1.6% * service years * final year’s salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2002 and is expected to retire at the end of 2036 after 35 years’ service. Her retirement is expected to span 18 years. Davenport’s salary is $90,000 at the end of 2016 and the company’s actuary projects her salary to be $240,000 at retirement. The actuary’s discount rate is 7%. Required: 1. What is the company’s projected benefit obligation at the beginning of 2016 (after 14 years’ service) with respect to Davenport? 2. Estimate by the projected benefits approach the portion of Davenport’s annual retirement payments attributable to 2016 service. 3. What is the company’s service cost for 2016 with respect to Davenport? 4. What is the company’s interest cost for 2016 with respect to Davenport? 5. Combine your answers to requirements 1, 3, and 4 to determine the company’s projected benefit obligation at the end of 2016 (after 15 years’ service) with respect to Davenport.
Sachs Brands’ defined benefit pension plan specifies annual retirement benefits equal to: 1.6% * service
years * final year’s salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning
of 2002 and is expected to retire at the end of 2036 after 35 years’ service. Her retirement is expected to
span 18 years. Davenport’s salary is $90,000 at the end of 2016 and the company’s actuary projects her salary to
be $240,000 at retirement. The actuary’s discount rate is 7%.
Required:
1. What is the company’s projected benefit obligation at the beginning of 2016 (after 14 years’ service) with
respect to Davenport?
2. Estimate by the projected benefits approach the portion of Davenport’s annual retirement payments attributable
to 2016 service.
3. What is the company’s service cost for 2016 with respect to Davenport?
4. What is the company’s interest cost for 2016 with respect to Davenport?
5. Combine your answers to requirements 1, 3, and 4 to determine the company’s projected benefit obligation at
the end of 2016 (after 15 years’ service) with respect to Davenport.
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