Clark Industries has a defined benefit pension plan that specifies annual retirement benefits equal to: 1.2% * Service years * Final year's salary Stanley Mills was hired by Clark at the beginning of 1994. Mills is expected to retire at the end of 2038 after 45 years of service. His retirement is expected to span 15 years. At the end of 2013, 20 years after being hired, his salary is $80,000. The company's actuary projects Mills's salary to be $270,000 at retirement. The actuary's discount rate is 7%. 1. Estimate the amount of Stanley Mills's annual retirement payments for the 15 retirement years earned as of the end of 2013. 2. Suppose Clark'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 retirement date of annuity payments during the retirement period. 3. What is the company's projected benefit obligation at the end of 2013 with respect to Stanley Mills?
Clark Industries has a defined benefit pension plan that specifies annual retirement benefits equal to: 1.2% * Service years * Final year's salary Stanley Mills was hired by Clark at the beginning of 1994. Mills is expected to retire at the end of 2038 after 45 years of service. His retirement is expected to span 15 years. At the end of 2013, 20 years after being hired, his salary is $80,000. The company's actuary projects Mills's salary to be $270,000 at retirement. The actuary's discount rate is 7%. 1. Estimate the amount of Stanley Mills's annual retirement payments for the 15 retirement years earned as of the end of 2013. 2. Suppose Clark'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 retirement date of annuity payments during the retirement period. 3. What is the company's projected benefit obligation at the end of 2013 with respect to Stanley Mills?
Chapter19: Deferred Compensation
Section: Chapter Questions
Problem 16CE
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Transcribed Image Text:Clark Industries has a defined benefit pension plan that specifies annual
retirement benefits equal to:
1.2% * Service years * Final year's salary
Stanley Mills was hired by Clark at the beginning of 1994. Mills is
expected to retire at the end of 2038 after 45 years of service. His
retirement is expected to span 15 years. At the end of 2013, 20 years
after being hired, his salary is $80,000. The company's actuary projects
Mills's salary to be $270,000 at retirement. The actuary's discount rate
is 7%.
1. Estimate the amount of Stanley Mills's annual retirement payments for
the 15 retirement years earned as of the end of 2013.
2. Suppose Clark'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 retirement date of annuity
payments during the retirement period.
3. What is the company's projected benefit obligation at the end of 2013
with respect to Stanley Mills?
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