Sachs Brands\' defined benefit pension plan specifies annual retirement benefits
ID: 2416720 • Letter: S
Question
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 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 $87,000 at the end of 2013 and the company’s actuary projects her salary to be $265,000 at retirement. The actuary's discount rate is 9%. (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.)
Estimate by the accumulated benefits approach the amount of Davenport's annual retirement payments earned as of the end of 2013.
What is the company’s accumulated benefit obligation at the end of 2013 with respect to Davenport?
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 $100,000?
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 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 $87,000 at the end of 2013 and the company’s actuary projects her salary to be $265,000 at retirement. The actuary's discount rate is 9%. (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.)
Explanation / Answer
Total Defined Benefit Plan Liability Present value of Total Liability recongnised in bigining of 1999 = 1.3% * Service Years * Final Years salary / 1.09^35 = 120575/20.41397 = 5906.495 Liability at the end of 2012 = 120575 * 1.09^14 years/1.09^35 = 19737.89 Annual Retirement payment for 2013 Year = Liability at the end of 2012 * 9% = 19737.89*9% = 1776.41 Accumulated benefir obligation at the end of 2013 = 120575 * 1.09^15 years/1.09^35 = 21514.3 Note: Always accumulated benefit plan liability calculated on final year salary / retirement salary so if salary in any middle year not consider.
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