A defined benefit pension plan specifies annual retirement benefits equal to 1.3%service yearsfinal year's salary, payable at the end of each year. An employee with 18 years of service is expected to work 21 more years before she retires, and her retirement is expected to span 22 years. The companys actuary projects her salary to be $265,000 at retirement. The discount rate is 6%.

Suppose that the actuary made the following changes in assumptions and estimates:

• Retirement will span 24 years (instead of 22)
• Final salary is estimated to be $270,000 (instead of $265,000)
• Discount rate is 5% (instead of 6%)

1. Without calculations, determine whether the longer retirement span will increase or decrease PBO? Explain (must explain to receive credit).

2. Calculate the gain or loss resulting from the implementation of all three changes above. Specify whether it is a gain or a loss. Must show your work to receive credit.