Question

Sachs Brands' defined benefit pension plan specifies annual retirement benefits equal to: 1.3% × service years × final year's salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2004 and is expected to retire at the end of 2038 after 35 years' service. Her retirement is expected to span 18 years. Davenport's salary is $96,000 at the end of 2018 and the company's actuary projects her salary to be $310,000 at retirement. The actuary's discount rate is 6%. (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 2018 (after 14 years' service) with respect to Davenport? (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)
2. Estimate by the projected benefits approach the portion of Davenport's annual retirement payments attributable to 2018 service.
3. What is the company's service cost for 2018 with respect to Davenport? (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)
4. What is the company's interest cost for 2018 with respect to Davenport? (Do not round intermediate calculations. Round your final answer to 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 2018 (after 15 years' service) with respect to Davenport. (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)

Answer 1

Dear student, Use Present value factor from your table, other wise it might be possible Minor difference in solution due to rounding of PV factor.

Answer 1
Annual retirement benefits = 1.3%*14*310000	$    56,420.00
Multiply: Present value of annuity table of $1: n=18, i=6%	10.82760
Present value of annuity	$ 610,893.19
Multiply: Present value table of $1: n=21, i=6%	0.29416
Company's projected benefit obligation at the beginning of 2018	$        179,700
Answer 2
Annual retirement payments (310000*1*1.30%)	$            4,030
Answer 3
Annual retirement payments	$            4,030
Multiply: Present value of annuity table of $1: n=18, i=6%	10.82760
Present value of annuity	$    43,635.23
Multiply: Present value table of $1: n=20, i=6%	0.31180
Service cost	$          13,605
Answer 4
Company's projected benefit obligation at the beginning of 2018	$        179,700
Multiply: interest rate	6%
Interest cost	$          10,782
Answer 5
Projected benefit obligation at the beginning of 2018	$        179,700
Add: Service cost	$          13,605
Add: interest cost	$          10,782
Projected benefit obligation at the end of 2018	$        204,088