Pension Paper

Analysis

Question 1:

Firstly, I calculated retirement benefit per year for an individual employee using the pension formula given below

Retirement benefit=2%*years of service*final year’s salary or 75% of final year’s salary (whichever is lower)

‘DATE’ function was used in excel to calculate the probable retirement date (refer to table). Retirement period is calculated by subtracting anticipated retirement date from anticipated lifespan for each employee.

Present value of retirement benefit as off retirement date is calculated by using PV formula in excel with using the following values

Present value1=PV(discount rate=6%, retirement period, retirement benefit per year, future value=0)

Present value2 as off 12/31/2014 is calculated using same formula where,

        Discount rate=6%

        Retirement period=Difference between retirement age and current age

        Retirement benefit=0

        Future value=Present value1

Present value2 as off 12/31/2014 is the Projected Benefit obligation for individual employee. Summarizing the PBO of all employees gave me the PBO for the whole organization.

PBO for PantherTec as off 12/31/2014 is  $ 107,734,036

All the calculation are shown in the appendix 1. 

Question 2:

The goal of this analysis is to find the pension expense using following formula (1)

[pic 1]

Firstly, I calculated the PBO at the end of the year 2013 using the same calculations and procedure of question 1 by fixing the current date as 12/31/2013. PBO at the end of 2013 is $97,938,721.

For service cost calculation, the change in PBO in between 2013 and 2014 was calculated. The interest cost on 2013 PBO was calculated by multiplying discount rate of 6% with 2013 PBO. Service cost is the difference of change in PBO and interest cost. The calculations are given below

Using similar methods, prior service cost can be calculated. I used the following data to calculate prior service cost.