Assume that a company establishes a DB pension plan. The employee has a salary in the coming
Question:
Assume that a company establishes a DB pension plan. The employee has a salary in the coming year of $50,000 and is expected to work for 3 more years before retiring. The assumed discount rate is 10%, and the assumed annual compensation increase is 4%
Current salary $50,000
Years until retirement 3
Annual compensation increases 4%
Discount rate 10%
Final year’s estimated salary $50,000*(1.04)2= $54,080
Benefit 2%
The plan will pay a lump sum pension benefit equal to 2% of the employee’s final salary for each year of service beyond the date of establishment.
Construct the pension table. Use the format below.
The Pension Table
Year | 1 | 2 | 3 |
Estimated annual salary | |||
Benefits attributed to: | |||
Prior years | |||
Current year | |||
Total benefit | |||
Opening Obligation | |||
Interest (10%) | |||
Current service cost | |||
Closing Obligation |
Cost Management Accounting and Control
ISBN: 978-0324559675
6th Edition
Authors: Don R. Hansen, Maryanne M. Mowen, Liming Guan