Sachs Brands’ defined benefit pension plan specifies annual retirement benefits equal to: 1.6% * serviceyears * final year’s salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginningof 2002 and is expected to retire at the end of 2036 after 35 years’ service. Her retirement is expected tospan 18 years. Davenport’s salary is $90,000 at the end of 2016 and the company’s actuary projects her salary tobe $240,000 at retirement. The actuary’s discount rate is 7%.Required:1. Draw a time line that depicts Davenport’s expected service period, retirement period, and a 2016 measurementdate for the pension obligation.2. Estimate by the accumulated benefits approach the amount of Davenport’s annual retirement payments earnedas of the end of 2016.3. What is the company’s accumulated benefit obligation at the end of 2016 with respect to Davenport?4. If no estimates are changed in the meantime, what will be the accumulated benefit obligation at the end of2019 (three years later) when Davenport’s salary is $100,000?
Sachs Brands’ defined benefit pension plan specifies annual retirement benefits equal to: 1.6% * service
years * final year’s salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning
of 2002 and is expected to retire at the end of 2036 after 35 years’ service. Her retirement is expected to
span 18 years. Davenport’s salary is $90,000 at the end of 2016 and the company’s actuary projects her salary to
be $240,000 at retirement. The actuary’s discount rate is 7%.
Required:
1. Draw a time line that depicts Davenport’s expected service period, retirement period, and a 2016 measurement
date for the pension obligation.
2. Estimate by the accumulated benefits approach the amount of Davenport’s annual retirement payments earned
as of the end of 2016.
3. What is the company’s accumulated benefit obligation at the end of 2016 with respect to Davenport?
4. If no estimates are changed in the meantime, what will be the accumulated benefit obligation at the end of
2019 (three years later) when Davenport’s salary is $100,000?
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