Question

Sachs Brands's defined benefit pension plan specifies annual retirement benefits equal to 1.6% × service years × final year's salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2007 and is expected to retire at the end of 2041 after 35 years' service. Her retirement is expected to span 18 years. Davenport's salary is $99,000 at the end of 2021 and the company's actuary projects her salary to be $325,000 at retirement. The actuary's discount rate is 9%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:

1. What is the company's projected benefit obligation at the beginning of 2021 (after 14 years' service) with respect to Davenport? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.)
2. Estimate by the projected benefits approach the portion of Davenport's annual retirement payments attributable to 2021 service.
3. What is the company's service cost for 2021 with respect to Davenport? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.)
4. What is the company's interest cost for 2021 with respect to Davenport? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.)
5. Combine your answers to requirements 1, 3, and 4 to determine the company's projected benefit obligation at the end of 2021 (after 15 years' service) with respect to Davenport. (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.)

Answer 1

Answer 1
Annual retirement benefits (1.6%*14*325000)	$    72,800.00
Multiply: Present value of annuity table of $1: n=18, i=9%	8.75563
Present value of annuity	$ 637,409.86
Multiply: Present value table of $1: n=21, i=9%	0.16370
Company's projected benefit obligation at the beginning of 2021	$        104,344

Answer 2
Annual retirement payments (325000*1*1.60%)	$            5,200

Answer 3
Annual retirement payments	$            5,200
Multiply: Present value of annuity table of $1: n=18, i=9%	8.75563
Present value of annuity	$    45,529.28
Multiply: Present value table of $1: n=20, i=9%	0.17843
Service cost	$            8,124

Answer 4
Company's projected benefit obligation at the beginning of 2021	$        104,344
Multiply: interest rate	9%
Interest cost	$            9,391

Answer 5
Projected benefit obligation at the beginning of 2021	$        104,344
Add: Service cost	$            8,124
Add: interest cost	$            9,391
Projected benefit obligation at the end of 2021	$        121,859