Question

1. Company A had a beginning PBO of $50,000, service cost, interest and benefits paid out were $10,000, $20,000 and $30,000 respectively. The ending PBO was $75,000. What factor is missing? How much is this factor?

2. Company B had a beginning PBO of $30,000, service cost was $10,000, and the ending PBO was $38,000. There were no actuarial changes and the settlement rate was 10%. What are the missing factors? How much are they?

3. Company C had a pension fund balance of $150,000 at the beginning of 2014. It contributed $30,000 during the year and paid benefits of $20,000. Its expected rate of return was 10% while the actual rate was only 8%. What is the balance at the pension fund at the end of 2014?

Answer 1

1

	Beginning PBO	$50,000
Add	Service cost	$10,000
Add	Interest Cost	$20,000
Less	Benefits Paid	$30,000
Add/Less	Gain or Loss From pension asset investment	$25,000	Here its loss that’s Why it Is Added
	Ending PBO	$75,000

2.. The Missing Factors Are interest cost and Benefits Settled because the question itself mention that there is no actuarial changes. So the Equation used in the prior answer will be modified as follows.

	Beginning PBO	$30,000
Add	Service cost	$10,000
Add	Interest Cost	$1,000
Less	Benefits Paid	$3,000
	Ending PBO	$38,000

Interest cost= Ending PBO+ Benefits paid-Service cost-Bigfnning PBO

Interest Cost=$38,000+$3,000-$10,000-$30,000=1,000

Benefits paid= Beginning PBO*settlement Rate

3.  

	Beginning PBO	$150,000
Add	Contribution	$30,000
Add	Benefits Paid	$20,000
Add	Actuarial loss	$3,000
	Ending PBO	$163,000

Actuarial loss = beginning PBO*(expected rate-actual rate)

=$15,000(10%-8%)

=$150,000*2%= 3,000