Question

Question 1: O'Sheet Linen Company defined benefit pension plan specifies annual retirement benefits equal to 1.4% 0.014) X service years X final year's salary, payable at the end of each vear. Alan Devereaux was hired by O'Sheet at the beginning of 2012 and is expected to retire at he end of 2036 after 25 years of service. His retirement is expected to span 12 years. Devereaux's salary is $50.000 at the end of 2018 and the company's actuary projects be $150,000 at retirement. The actuary uses a discount rate of 5%. •quired: 1. What is the company's projected benefit obligation at the beginning of 2018 (after 6 years' service with regard to Devereaux? 2. What is the cornpany's projected benefit obligation at the end of 2018 with respect to Devereaux? 3. What is the company's service cost for 2018 with respect to Devereaux? 1. What is the company's interest cost for 2018 with respect to Devereaux?

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Answer 1

Particulars	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023
Opening Obligation	0	1227.82651	2578.436	4061.036	5685.451	7462.154	9402.314	11517.83	13821.4	16326.53	19047.62	22000
Interest @ 5%	0	61.3913254	128.9218	203.0518	284.2725	373.1077	470.1157	575.8917	691.0701	816.3265	952.381	1100
Current Service Cost	1227.827	1289.21783	1353.679	1421.363	1492.431	1567.052	1645.405	1727.675	1814.059	1904.762	2000	2100
Closing Obligation	1227.827	2578.43566	4061.036	5685.451	7462.154	9402.314	11517.83	13821.4	16326.53	19047.62	22000	25200.00
Total Amount due at the end of 12 years = 1.4% x 12 x $ 150000 =			$	25200
Amount earned as Retirment benefit for each year = 25200/12 = $ 2100
Discounting factor @ 5% at the end of year 2012		1.71033936
Discounting factor @ 5% at the end of year 2013		1.62889463
Discounting factor @ 5% at the end of year 2014		1.55132822
Discounting factor @ 5% at the end of year 2015		1.47745544
Discounting factor @ 5% at the end of year 2016		1.40710042
Discounting factor @ 5% at the end of year 2017		1.34009564
Discounting factor @ 5% at the end of year 2018		1.27628156
Discounting factor @ 5% at the end of year 2019		1.21550625
Discounting factor @ 5% at the end of year 2020		1.157625
Discounting factor @ 5% at the end of year 2021		1.1025
Discounting factor @ 5% at the end of year 2022		1.05
Answer to Q 1
Company's Projected Benefit Obligation at the Beginning of 2018 i.e Closing obligation of 2018
=   $ 2100 x 6 completed year of service x Discouting Factor @ 5% of 6 years
=    $ 2100 x 6 x 1.34009564
= $ 9402.314
Answer to Q 2
Company's Projected Benefit Obligation at the yen of year 2018
=   $ 2100 x 7 completed year of service x Discouting Factor @ 5% of 7 years
=    $ 2100 x 7 x 1.27628156
= $ 11517.83
Answer to Q 3
Company's Service Cost for 2018
=   Closing Obligation of 2018 - Opening Obligation - Interest Cost
=   $ 11517.83 - $ 9402.314 - ( $ 9402.314 x 5%)
= $ 1645.405
Answer to Q 4
Company's Interest Cost for 2018
= Opening Obligation of 2018 x Rate of Interest
= $ 9402.314 x 5% = $ 470.1157