Need Help with Additional Problems #$1-$#$11$ in example down below Pension Handout

In$-$Class Example and Homework Problem$1$

Pension plan data

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 $=\mathrm{.}015$ 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$

$1.$ Calculate the estimated annual retirement benefit at the time of retirement.

$2.$ Calculate the projected benefit obligation $($PBO$)$ at the time of retirement.

$3.$ Calculate the PBO at age $38,$ four years after the employee began working.

$4.$ 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 expense for years $1$ and $2.$

$6.$ Calculate the pension expense for years $1$ 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 the problems 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.

$3.$ Calculate the service cost and interest cost components of pension expense for years $3$ and $4.$

$4.$ 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 plan assets.

$5.$ 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 $1.$

$6.$ Calculate the plan asset balance at the end of years $3$ and $4$ by accumulating contributions and return on the

pension fund over the appropriate years, starting from year $1.$

$7.$ Make the journal entries for years $1-4$ to record pension expense and contributions to the pension fund.

$8.$ Calculate the difference between the plan asset balance and the PBO at the end of year $3$ and the end of year

$4($this difference is called $$funded status$).$

$9.$ Verify that the change in the funded status from the end of year $3$ to the end of year $4$ equals the net of the

year $4$ pension expense and the year $4$ cash contributions $($from the year $4$ journal entry in #$7).$

$10.$ Using the journal entries prepared in #$7,$ calculate the balance in the Pension$-$Related Asset$/$Liability

account at the end of year $4$ and verify that it equals the funded status at the end of year $4($calculated in #$8$

above$).[$Note: Although this is true for this problem, it won$$t necessarily be true in general if the other

potential components of pension expense, which we are not discussing, are included.$]$

$11$ Verify that the PBO at the end of year $4($from #$5$ above$)$ equals the PBO at the end of year $4($from #$3$ in

the in$-$class portion of this problem$)$ within rounding error.