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FM12 Ch 29 Tool Kit - To illu with the following...

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Tool Kit for Chapter 29: Pension Plan Management 4. The pension fund will earn 8% on its assets. Find the (1) Present Value of the future benefits and (2) the company's required annual contributions. Interest rate: 8% Number of years after retirement: 15 Annual pension payment: $10,000 Required value using the PV function: $85,594.79 Since the company has 25 years to accumulate this amount, its annual pension contribution is: Interest rate: 8% Number of years: 25 Required amount: $85,595 Required contribution using the PMT function: $1,170.83 PENSION FUND MATHEMATICS: DEFINED BENEFIT PLANS (Section 29.4) The calculation of the present value of expected future benefits is of primary importance for defined benefit pensi calculation determines both the required contribution to the fund for the year and the reported unfunded liability essential that financial managers understand the basic mathematics that underlie the benefits calculation.
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Unformatted text preview: To illu with the following assumptions: 1. A firm has only one employee, age 40, who will retire in 25 years at age 65, will die at age 80, and hence live for retirement. 2. The firm has promised a benefit of $10,000 at the end of each year following retirement until death. For accou this $10,000 will be vested each year the employee works for the company. 3. The company will definitely make the required payments over the next 25 years in order to build up the fund t make the payments of $10,000 per year during the employee's 15 year retirement life. 9/23/2006 sion plans. This ty or surplus. It is ustrate the process, begin r 15 years after unting purposes 1/25 of to the level needed to...
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FM12 Ch 29 Tool Kit - To illu with the following...

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