Assume that a company establishes a DB pension plan. The employee has a salary in...
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Accounting
Assume that a company establishes a DB pension plan. The employee has a salary in the coming year of $50,000 and is expected to work for 3 more years before retiring. The assumed discount rate is 10%, and the assumed annual compensation increase is 4%
Current salary $50,000
Years until retirement 3
Annual compensation increases 4%
Discount rate 10%
Final years estimated salary $50,000*(1.04)2= $54,080
Benefit 2%
The plan will pay a lump sum pension benefit equal to 2% of the employees final salary for each year of service beyond the date of establishment.
Construct the pension table. Use the format below.
The Pension Table
Year
1
2
3
Estimated annual salary
Benefits attributed to:
Prior years
Current year
Total benefit
Opening Obligation
Interest (10%)
Current service cost
Closing Obligation
Answer & Explanation
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