Question

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6.)	Use the pension formula (including a projection of future salary levels) to determine the retirement benefits earned to date.
	FACTS:
	The company has a defined benefit plan
	Jessica's salary at the end of 2017 is	$    119,000
	Retirement expected after	45	years of service
	Retirement period is expected to be	20	years
	Interest Rate	4.0%
	Benefits are calculated as a formula as the product of:
	Service already provided	22	years
	Percentage	3.0%
	Final year's salary is projected to be	$    250,000

Answer 1

1)Pension Formula to determine retirement benefits earned to date

1.5% * Years of Service * Final Year's Salary(to take in account of inflation)

=0.015* 22years(below)* 250,000 =82,500 Per Year.

   **this estimates the employee has earned (till2017) of retirement benefit. that's why 22years**

2)Find Present Value of retirement benefits as of retirement Date

Number of year from retirement,n=20years(retirement period)

inerest rate,i=4%

PV of retirement annuity at retirement date ==82,500*13.5903 (w1) =1,121,200

**using annuity because equal amount for a period of ime.

annuity factor can be obtained from PV of aanuity table for 20years @4%

or

(W1) ==82,500*13.5903 =1,121,200

2)Find Present Value of retirement benefits as of now (2017)

n,years from 2017 now to retirement=45 total - 22 service till now =23years

i=4% =r

Present Value of retirement benefit = 1,121,200 8 pv factor 23years @4%

=1,121,200 * 0.4057(w2)

=454,870

W2) PV = = =0.4057