Frank Lloyd a senior executive at Equity Solutions LLP was hired at the end of 2007. His defined benefit plan formula at the time promised the following:
Annual payment = 2% x final annual salary x number of years of service
Frank the only employee in the plan is expected to retire after 35 years of working at Equity Solutions and expected to have a retirement period of 20 years. At the end of 2022, his salary is $100,000 and expected to be $150,000 at retirement. The actuary uses an interest rate of 5% for the pension obligation. The payments in retirement occur at the beginning of each year.

REQUIRED:

1. Calculate the PBO related to Frank Lloyd’s retirement obligation at the end of 2022.
2. Assume that on January 1, 2023, that Equity Solutions LLP amended the plan to 2.5% and was applied to prior service years. How much prior service cost will arise because of the plan amendment?

Answer rating: 100% (QA)

1 To calculate the PBO related to Frank Lloyds retirement obligation at the end of 2022 we need to f... View the full answer