Phil works for the Government of Alberta. Phil is covered by a defined benefit pension plan. Phil just turned 45 years old, and expects to retire at age 65. At that time, the pension plan will pay Phil annual pension payments equal to 2% of his final year's salary for each year of services rendered. The pension payments will continue until Phil's death, which actuaries expect to be when he turns 80 years old. For the current year, Phil will earn $55,000, and this rate is expected to increase by 5% per year. Assume that the Alberta Government uses a 10% interest rate for its pension obligations.
Required:
Determine the current service cost for Phil Jackson's pension for the past year (the year just before he turned 45).

Question

Quizplus · Accepted Answer

The Answer of Phil works for the Government of Alberta. Phil is covered by a defined benefit pension plan. Phil just turned 45 years old, and expects to retire at age 65. At that time, the pension plan will pay Phil annual pension payments equal to 2% of his final year's salary for each year of services rendered. The pension payments will continue until Phil's death, which actuaries expect to be when he turns 80 years old. For the current year, Phil will earn $55,000, and this rate is expected to increase by 5% per year. Assume that the Alberta Government uses a 10% interest rate for its pension obligations.
Required:
Determine the current service cost for Phil Jackson's pension for the past year (the year just before he turned 45).

Phil Works for the Government of Alberta