136C Notes - 1/18/10
Today's Reading: Pg 1063-1067
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At 12/31/2011:
Go to the actuary with all of the information and let them allocate what they think the cost is
going to be. Things change from year to year, so the actuary wants information every year.
>New info: Mr. Faithful's salary increased from 30,000 to 35,000 a year.
>Everything is based on the new salary level (a major component of how pension expense
is calculated.
PVAD 10%, 20yrs
PBO
60,000 x 50% = 30,000 x
936,492
= 280,948
<<---Goal
PV1 10%, 20yrs
280,948 x
.16351
= 45,937
<---Measuring stick
>>Last year, was 41,760… difference of $4,177
Service cost
$45,937 x 1/30 = $1,531
>>Last year was $1,392… a difference of $139
*Expecting these to all go up by about the settlement rate each year.
So what is our PBO this year? 11/30 of the
measuring stick
… this goes on the balance sheet.
$45,937 x 11/30 = $16,843
>>Last time it was $13,920, a difference of $2923… why wasn't it exactly 10%?
>>1392 is the 10% on the number, and the service cost is factored in as well.
He did visible work and earned that much money, and it is a new year.
Present value calculations also factor in to the increase
Pension Expense: Factors involved in the increase
(pen. exp)>
1) Service costs
$1,531
2) Interest costs
$1,392
<-- PBO@Beginning of year
*Time value of money
plus PBO x Discount
(assets)
3) Interest Offset
*
($160)
^Natural increase in PBO due to time
BOY Assets x EXPEC. Return on assets.