A defined benefit pension plan has expected payouts of $15 million per year for 8 years and then $20 million over the following 15 years. Actuaries have estimated that the fund can be expected to earn an average of 5.25% on its assets. The fund currently has reserves of $185,475,000. The plan is ___________ by about ___________ million.

Question

Quizplus · Accepted Answer

Using the formula given, we can calculate the present value of expected payouts to be $231.475 million. Subtracting this from the current reserves of $185.475 million gives us a deficit of $46 million, indicating that the plan is underfunded. Therefore, the correct answer is E) underfunded; $46.

A Defined Benefit Pension Plan Has Expected Payouts of $15