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Tomahawk County offers a defined benefit pension plan to all employees with at least 5 years...

Tomahawk County offers a defined benefit pension plan to all employees with at least 5 years of service (vested). The pension factor for this plan is 1.2%. As of the end of 2019, Maria, an employee, will have worked 14 years. Company accountants think that she will work 10 more years until retirement, at which time she will begin receiving annual pension payments. Maria makes $50,000 per year salary. The accountants also believe that Maria will probably leave with a $60,000 annual salary. The company is given a 4% interest rate. They expect that Maria’s retirement payments will be made for 25 years.

_______________4. Calculate the pension liability PBO for Maria for the end of 2020.

_______________5. Calculate the Prior Service Cost component of the pension liability PBO for Maria for 2020 if the pension factor is raised to 1.4%. The Prior Service Cost is the difference in the PBO under the new pension factor and the old pension factor.

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Tomahawk county offers a defined benefit pension plan to all employees with at least 5 years of service (vested). The pension factor for this plan is 1.2%. As of end of 2019, Maria an employee, will have worked for 14 years. Company accountants think that she will work for 10 more years until retirement, at which time she will begin receiving annual pension payments. Maria makes $50,000 per year salary. The accountants also believe that Maria will probably leave with a $60,000 annual salary. The company is given a 4% interest rate. They expect that Maria's retirement payments will be made for 25 years.

PBO (Projected benefit obligation) is an actuarial measurement of what a company will need at the present time to cover the future pension liability. It is used to determine how much must be paid into a defined benefit pension plan to satisfy all pension entitlements that have been earned by employees up to that date, adjusted for expected future salary increase.

Pension calculation= Annual salary*Pension factor=$50000*1.2%=$600 per year

Pension liability till 2020=no of years of service*pension per year =15*$600=$9000

Company giving interest rate 4%

Pension liability till 2020 for the company=$9000+$9000*4%=$9360


ekkarill92 answered 2 years ago
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