Pension Problem #1 Plake Inc., which was founded in 1985, adopted a defined benefit pension plan on January 1, 2006, that provides an annual retirement benefit equal to 1% of an employee’s final, 5-year average pay for each year of service with the Company. All existing employees at that date were granted benefits for their prior service with the company. The Company’s actuaries calculated a PBO of $198,792 as of January 1, 2006, which resulted from the decision to grant benefits for prior service. Also, on January 1, the Company immediately contributed $50,000 to the new plan. During 2006, employees earned additional plan benefits of $95,793 and Plake contributed an additional $60,000 of cash to the plan. An 8% discount rate was used to determine the PBO and the investment return on plan assets was expected to be 9%. In addition, the accumulated benefit obligation at December 31, 2006, totaled $212,074 and the actual return on pension assets during 2006 was $5,000 higher than the expected return. The
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