Defined benefit, noncontributory pension plan. Retirement benefits paid at year-end, with the first payment one year after retirement. Assumed discount (settlement) rate is 6 percent. Benefits are defined by the following formula: Annual retirement benefit = .015 x n x Highest salary level where n equals the number of years of service that qualify for pension credit. Data for a particular employee Retirement age of 62. Expected retirement period of 20 years. The only employee began working for the company at age 34. Various salary levels for the employee (actual and projected): Age Salary Level 34 $38,000 38 $42,000 39 $43,500 62 $87,000 AWN - Calculate the estimated annual retirement benefit at the time of retirement. Calculate the projected benefit obligation (PBO) at the time of retirement. Calculate the PBO at age 38, four years after the employee began working. Calculate the accumulated benefit obligation (ABO) at age 38, four years after the employee began working. 5. Calculate the service cost and interest cost components of pension cost for years 1 and 2. 6. Calculate the pension expense for years I and 2, assuming $3,000 contributions to the pension fund at the end of each year. The expected and actual rate of return on the pension fund was 8%. Homework Assignment (in addition to P17-38 from the book) Use the information from above to complete the following requirements. Recognize that some rounding differences may exist when you are asked to verify amounts which should be equal. 1. Calculate the PBO at age 39, five years after the employee began working. 2. Calculate the ABO at age 39, five years after the employee began working. 3. 4. Calculate the service cost and interest cost components of pension expense for years 3 and 4. Calculate pension expense for years 3 and 4, assuming $3,000 contributions to the pension fund at the end of each year and an 8% actual and expected rate of return on the pension fund. 5. Calculate the PBO balance at the end of years 3 and 4 by accumulating service cost and interest cost over the appropriate years, starting from year 1