2019 Sisters Inc , is now a worldwide pet food conglomerate, run by two sisters, Big Sister, the CEO, and Little Sister, the President As a result of a massive we are the 100 minus 1 strike, that attracted national media attention, the company started negotiating a new union agreement with its employee union, Pets R US effective January 1, 2019, and as the new union representative, Guy W G Shepherd is responsible for determining how the agreement will impact the companys overhead, especially its defined benefit pension plan Moreover, Guy needs to decide if the agreement is fair and whether Sisters Inc is not lowballing and can really afford to provide a higher pension expense to its employees and avoid future labor strikes As a threshold for lowballing, the union agreed that pension expense should be at least 1 of Sisters budgeted net income for 2020, based on what other pension plans are offering and the theme of the last labor strike Therefore, if the pension expense is greater than 1 of budgeted net income, Guy W G Shepherd is prepared to accept Sisters proposal on behalf of Pets R Us If it is less than 1 , its back to the drawing board for further negotiations At first, Sisters Inc wanted to delay the negotiations and give W G Shepherd some pumpkin and chicken (his favorite meal) and even offered to invite him to his favorite ball game, but W G Shepherd refused since he didnt want that to influence his decision making ability as a steward and representative of the union After a late night of negotiations Sisters CEO Big Sister finally gave W G Shepherd something real to chew on Sisters Inc proposed a new defined pension plan called the Meow Max Plan that creates a defined benefit plan for employees who are expected to retire in six years at the end of 2025 since those were the employees who were most active in the recent strike Mew Max Pension Plan Details and Assumptions Employee Details Discount rate 5 50 Start of Plan 1 Jan 2019 Pension Plan Benefit Payments Expected retirement date 31 Dec 2025 Annual payments are paid at year end and continue for 30 years, 100 employees are expected to retire in 2025 At this time, Sisters Inc has made no plans to provide any contributions to the plan, but may decide to do so in a few years Average Salary from last 5 years $50,000 Estimated years in retirement 30 Budgeted Net Income for 2020 $150 million Benefit Formula Average of Last 5 Years Salary Number of Years of Service 0 025 What is the estimated retirement payment one employee will earn at the end of year after they retire as part of the Mew Max Plan (Hint Use benefit formula) $7,000 $7,500 $8,000 $8,500 2 What is the present value of estimated future retirement payments at the start of retirement for one employee (Hint Use the amount calculated above as your annuity payment and the given assumptions above for the number of years and discount rate) $85,505 B $90,143 C $103,050 D $109,003 3 What is the average undiscounted service cost earned by employees each year (Hint Divide the amount you calculated above by the number of years of service) $15,024 $18,029 C $18,167 D $21,801 What is the discounted service cost component of the Meow Mix Pension Plan at the end of 2019 for just one employee (Hint calculate the present value of the amount calculated above) $13,176 $13,900 $15,811 $16,680 What is the projected benefit obligation at the end of 2019 (Hint include all employees covered by the plan) $1,317,600 $1,390,000 $1,581,100 $1,668,000 What is the service cost at the end of 2020 assuming just one employee was in the plan $13,900 $14,665 $15,811 $17,598 What is the interest cost at the end of 2020 $50,000 $76,450 $85,961 $91,740 What is pension expense at the end of 2020 1,390,000 1,466,500 1,543,060 1,545,625 What is the projected benefit obligation at the end of 2020 1,390,000 1,543,060 2,856,500 2,933,060 Should W G Shepherd accept Big Sisters proposal Yes No

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2019. Sisters Inc., is now a worldwide pet food conglomerate, run by two sisters, Big Sister, the CEO, and Little Sister, the President. As a

2019. Sisters Inc., is now a worldwide pet food conglomerate, run by two sisters, Big Sister, the CEO, and Little Sister, the President. As a result of a massive we are the 100% minus 1% strike, that attracted national media attention, the company started negotiating a new union agreement with its employee union, Pets R. US effective January 1, 2019, and as the new union representative, Guy W.G. Shepherd is responsible for determining how the agreement will impact the companys overhead, especially its defined benefit pension plan.

Moreover, Guy needs to decide if the agreement is fair and whether Sisters Inc. is not lowballing and can really afford to provide a higher pension expense to its employees and avoid future labor strikes.

As a threshold for lowballing, the union agreed that pension expense should be at least 1% of Sisters budgeted net income for 2020, based on what other pension plans are offering and the theme of the last labor strike. Therefore, if the pension expense is greater than 1% of budgeted net income, Guy W.G. Shepherd is prepared to accept Sisters proposal on behalf of Pets R Us. If it is less than 1%, its back to the drawing board for further negotiations.

At first, Sisters Inc. wanted to delay the negotiations and give W.G. Shepherd some pumpkin and chicken (his favorite meal) and even offered to invite him to his favorite ball game, but W.G. Shepherd refused since he didnt want that to influence his decision-making ability as a steward and representative of the union.

After a late night of negotiations Sisters CEO Big Sister finally gave W.G. Shepherd something real to chew on. Sisters Inc. proposed a new defined pension plan called the Meow Max Plan that creates a defined benefit plan for employees who are expected to retire in six years at the end of 2025 since those were the employees who were most active in the recent strike.

Mew Max Pension Plan Details and Assumptions		Employee Details
Discount rate	5.50%	Start of Plan	1 Jan. 2019
Pension Plan Benefit Payments		Expected retirement date	31 Dec. 2025
Annual payments are paid at year end and continue for 30 years, 100 employees are expected to retire in 2025. At this time, Sisters Inc. has made no plans to provide any contributions to the plan, but may decide to do so in a few years.		Average Salary from last 5 years:	$50,000
		Estimated years in retirement	30

Budgeted Net Income for 2020: $150 million

Benefit Formula: Average of Last 5 Years Salary Number of Years of Service 0.025

What is the estimated retirement payment one employee will earn at the end of year after they retire as part of the Mew Max Plan? (Hint: Use benefit formula) -

$7,000
$7,500
$8,000
$8,500

2. What is the present value of estimated future retirement payments at the start of retirement for one employee? (Hint: Use the amount calculated above as your annuity payment and the given assumptions above for the number of years and discount rate)

$85,505

B. $90,143

C. $103,050

D. $109,003

3. What is the average undiscounted service cost earned by employees each year? (Hint: Divide the amount you calculated above by the number of years of service)

$15,024
$18,029

C. $18,167

D. $21,801

What is the discounted service cost component of the Meow Mix Pension Plan at the end of 2019 for just one employee (Hint: calculate the present value of the amount calculated above)