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Excel Problem Set 5 Retiree Benefits, Spring 2008

# Excel Problem Set 5 Retiree Benefits, Spring 2008 - Excel...

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Excel Problem Set 5, Retiree Benefits Accounting for a Pension Fund Liability: Simplified Example 1 1. Beginning Projected Benefit Obligation 0.06 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Beginning projected benefit obligation, Dec 31, 2004 \$90,078.35 \$0 \$0 \$0 \$0 \$0 \$25,000 \$25,000 \$25,000 \$25,000 \$25,000 \$25,000 2. Interest Cost 0.06 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Projected benefit obligation, Dec 31, 2005, no changes \$95,708.24 \$0 \$0 \$0 \$0 \$25,000 \$25,000 \$25,000 \$25,000 \$25,000 \$25,000 3. Service Cost 0.06 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Projected benefit obligation, Dec 31, 2005, additional work \$105,279.07 \$0 \$0 \$0 \$0 \$27,500 \$27,500 \$27,500 \$27,500 \$27,500 \$27,500 4. Actuarial Loss 0.06 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Projected benefit obligation, Dec 31, 2005, 6.25% to 6% \$107,111.99 \$0 \$0 \$0 \$0 \$27,500 \$27,500 \$27,500 \$27,500 \$27,500 \$27,500 Summary Beginning projected benefit obligation \$90,078.35 +Interest cost (\$95,708.24-\$90,078.35) \$5,629.90 +Service cost (\$105,279.07-\$95,708.24) \$9,570.82 +Actuarial loss (\$107,111.99 - \$105,279.07) \$1,832.92 Ending projected benefit obligation \$107,111.99 Copyright ©, by Michael J. Sandretto, 2006-2008 Defined benefit pension plans provide retirees with a stated (defined) monthly benefit from retirement until death. For retirees with a spouse, plans typically offer a retirement benefit until the death of both spouses. Suppose a firm has one employee. On December 31, 2004, the firm believes that employee will retire in January 1, 2010 with a \$25,000 annual pension and will live until December 31, 2015. For simplicity, assume the entire amount is paid the last day of each year. Assume the company computes the present value of its pension liability by discounting expected pension payments at a rate of 6.25%. It would show a \$90,078.35 liability, as follows:

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Excel Problem Set 5 Retiree Benefits, Spring 2008 - Excel...

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