Exam 17: Pensions and Other Employee Future Benefits

Saul is currently 30 years old and he plans to retire early,in 20 years' time.He would like to have an income of $60,000 per year during his retirement,which he anticipates will last for another 40 years.Assume that he receives the retirement income at the end of each of the 40 years. Required: Determine the amount of money he will need to have accumulated by the time he starts his retirement.Assume a discount rate of 5%.

Which statement is correct?

Othello Steel provides a defined benefit pension plan for its employees.One of its employees,Ginger Philips,who just turned 45 years old,expects to retire at age 70.At that time,the pension plan will pay Ginger annual pension payments equal to 10% of her final year's salary for each year of services rendered by Gail.The pension payments will continue until Gail's death,which actuaries expect to be when she turns 95 years old.Ginger is currently earning $75,000 per year,and this rate is not expected to increase due to the poor state of the steel industry.Orion Steel uses a 6 % interest rate for its pension obligations. Required: Determine the current service cost for Ginger Philips's pension for the past year (the year just before she turned 45).

A company has a defined benefit pension asset of $1,050,000 at the beginning of the year.The company contributes $5,500,000 to the pension during the year and records a pension expense of $8,200,000. Required: Determine the value of the defined benefit pension liability at year-end.

What is the key distinction between amounts recorded through income as pension expense versus amounts recorded through OCI?

A company has a defined benefit pension liability of $3,750,000 at the end of the year.The company contributes $5,500,000 to the pension during the year and records a pension expense of $8,200,000. Required: Determine the value of the defined benefit pension liability at the beginning of the year.

KitKat Singh is currently 30 years old and he plans to retire early,in 25 years' time.He would like to have an income of $50,000 per year during his retirement,which he anticipates will last for another 30 years.Assume that he receives the retirement income at the end of each of the 30 years. Required: Determine the amount of money he will need to have accumulated by the time he starts his retirement.Assume a discount rate of 5%.

A pension plan promises to pay $75,000 at the end of each year of the retirement period. Required: Compute the funds required to fund this pension plan at the start of the retirement period assuming: a.discount rate of 9% and a retirement period of 30 years;or b.discount rate of 9% and a retirement period of 40 years.

Explain how a change in each of the following assumptions will impact the pension surplus and the defined benefit pension asset.