Case Study $-$ Pension Liabilities and Benefits Estimation

Assumptions

Newly formed town

Town population $-150,000$

Demographics

a$.$ Ages

b$.$ Ages $16-60=70\%$

i$.$ Ages $16-20=20\%$ makes $$30,000$ per year

ii$.$ Ages $20-40=30\%$ makes $$50,000$ per year

iii. Ages $40-60=20\%$ makes $$70,000$ per year

c$.$ Ages $60$ above $=10\%$

Every working$-$age resident works at a Railway Yard that provides livelihood.

Salary increases by $2\%$ every year.

The investment return assumption is $6\%$ per year.

Retirement age is $61.$

The Railway Yard provides one lump sum payment to every employee at retirement.

Annual Accrual towards lumpsum $=\frac{1}{{10}^{th}}$ of annual salary is calculated till retirement.

Calculate the total pension liability of the Railway Yard in today's dollars.

a$.$ What if salary increases by $3\%$ every year?

b$.$ What if the investment return assumption is $5\%$ per year?

c$.$ What if the formula is changed to $\frac{1}{8^{th}}?$