Morgan International has a defined benefit pension plan which specifies annual r

Question

Morgan International has a defined benefit pension plan which specifies annual retirement benefits equal to: 1.6% × service years × final year's salary, payable at the end of each year. Jane Goodman was hired by Morgan 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. Goodman’s salary is $90,000 at the end of 2013 and the company's actuary projects her salary to be $240,000 at retirement. The actuary's discount rate is 7%. (Present value of an ordinary annuity of $1: n = 18, i = 7% is 10.05909, Present value of $1: n = 20, i = 7% is .25842).

The company’s projected benefit obligation at the end of 2013 with respect to Goodman is

A) 149,730

B) 230,200

C) 220,106

D) 579,404

Explanation / Answer

The company projected benefit obligation at the end of 2013 :

= 1.6% × service years × final year's salary

= 1.6% x 15 x $240,000 = $57,600

then $57,600 x 10,05909 = $579,404

afther that $579,404 x 0.25842 = $149,730

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