Question

The projected benefit obligation was $380 million at the beginning of the year and $407 million at the end of the year. At the end of the year, pension benefits paid by the trustee were $17 million and there were no pension-related other comprehensive income accounts requiring amortization. The actuary’s discount rate was 5%.

What was the amount of the service cost for the year?

Answer 1

Solution:
	Service cost                                                              $	25	million
Working Notes:
		$ in million
	Beginning of the year PBO	380
Add:	Service cost	25	Balancing figure
Add:	Interest cost	19
	[ disc rate 5% x 380 beg. PBO }
	Loss or (gain) on PBO	0
Less:	Retiree benefits(paid by trustee)	(17)
	End of the year PBO	407
From above
	380 + service cost + 19 - 17 = 407
	Service cost = 407 + 17 - 19 - 380
	Service cost = $25 million
Please feel free to ask if anything about above solution in comment section of the question.