Perry Industries has a defined benefit pension plan that specifies annual, year-end retirement benefits equal to 1.3% × Service years × Final year's salary. Carol was hired by Perry at the beginning of 2015. Clark is expected to retire at the end of 2054 after 40 years of service. Her retirement is expected to span 15 years. At the end of 2024, 10 years after being hired, her salary is $60,000. The company's actuary projects Clark's salary to be $210,000 at retirement. The actuary's discount rate is 6%. Required: Estimate the amount of Carol’s annual retirement payments for the 15 retirement years earned as of the end of 2024. Suppose Perry’s pension plan permits a lump-sum payment at retirement in lieu of annuity payments. Determine the lump-sum equivalent as the present value as of the earned retirement annuity at the expected date of retirement (the end of 2054). What is the company’s projected benefit obligation at the end of 2024 with respect to Carol? Navigation: Use the Open Excel in New Tab button to launch this question. When finished in Excel, use the Save and Return to Assignment button in the lower right to return to Connect.

SWFT Individual Income Taxes
43rd Edition
ISBN:9780357391365
Author:YOUNG
Publisher:YOUNG
Chapter19: Deferred Compensation
Section: Chapter Questions
Problem 16CE
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Perry Industries has a defined benefit pension plan that specifies annual, year-end retirement benefits equal to 1.3% × Service years × Final year's salary. Carol was hired by Perry at the beginning of 2015. Clark is expected to retire at the end of 2054 after 40 years of service. Her retirement is expected to span 15 years. At the end of 2024, 10 years after being hired, her salary is $60,000. The company's actuary projects Clark's salary to be $210,000 at retirement. The actuary's discount rate is 6%.

Required:

  1. Estimate the amount of Carol’s annual retirement payments for the 15 retirement years earned as of the end of 2024.
  2. Suppose Perry’s pension plan permits a lump-sum payment at retirement in lieu of annuity payments. Determine the lump-sum equivalent as the present value as of the earned retirement annuity at the expected date of retirement (the end of 2054).
  3. What is the company’s projected benefit obligation at the end of 2024 with respect to Carol?

Navigation:

  1. Use the Open Excel in New Tab button to launch this question.
  2. When finished in Excel, use the Save and Return to Assignment button in the lower right to return to Connect.

 

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