Employee Benefits
Employee benefits
1.) Pogi Company has established a defined benefit pension plan for its employees. Annual payments under the pension plan are equal to 3% of an employee’s highest lifetime salary multiplied by the number of years with the entity. An employee’s salary in 2011 was P500,000. The employee is expected to retire in 10 years, and the salary increase are expected to average 4% per year during the period. On December 31, 2011, the employee has worked for 15 years, The future value of 1 at 4% for 10 periods is 1.48.
What is the annual pension payment that should be used in computing the projected benefit obligation on December 31,2011? a. 555,000 b. 375,000 c. 333,000 d. 225,000
Answer: c
Solution:
Future salary (500,000 x 1.48) 740,000
Annual pension payment – PBO 333,000
(740,000 x 3% x 15years)
Annual pension payment - ABO 225,000
(500,000 x 3% x 15years)
The projected benefit obligation (PBO) is based on future salary while accumulated benefit obligation (ABO) is based on current salary. 2.) Warlock Company has established a defined benefit pension plan for its lone employee. Annual payments under the pension plan are equal to the employee’s highest lifetime salary multiplied by 2% multiplied by number of years with the entity. On December 31, 2011, the employee had worked for Warlock Company for 10 years. The salary in 2011 was P500,000. The employee is expected to live 15 years after retiring and will receive first annual pension payment one year after retirement. The discount rate is 8%. The relevant present value and future value factors are:
Future value of 1 at 3% for 25 periods 2.094
PV of an ordinary annuity of 1 at 8% for 15 periods 8.559
PV of 1 at 8% for 25 periods 0.146
What is the projected benefit obligation on December 31, 2011? a. 209,400 b. 261,669 c. 100,000 d. 124,961
Answer: b
Solution:
Future salary – PBO (500,000 x 2.094) 1,047,000
Annual pension
1.) Pogi Company has established a defined benefit pension plan for its employees. Annual payments under the pension plan are equal to 3% of an employee’s highest lifetime salary multiplied by the number of years with the entity. An employee’s salary in 2011 was P500,000. The employee is expected to retire in 10 years, and the salary increase are expected to average 4% per year during the period. On December 31, 2011, the employee has worked for 15 years, The future value of 1 at 4% for 10 periods is 1.48.
What is the annual pension payment that should be used in computing the projected benefit obligation on December 31,2011? a. 555,000 b. 375,000 c. 333,000 d. 225,000
Answer: c
Solution:
Future salary (500,000 x 1.48) 740,000
Annual pension payment – PBO 333,000
(740,000 x 3% x 15years)
Annual pension payment - ABO 225,000
(500,000 x 3% x 15years)
The projected benefit obligation (PBO) is based on future salary while accumulated benefit obligation (ABO) is based on current salary. 2.) Warlock Company has established a defined benefit pension plan for its lone employee. Annual payments under the pension plan are equal to the employee’s highest lifetime salary multiplied by 2% multiplied by number of years with the entity. On December 31, 2011, the employee had worked for Warlock Company for 10 years. The salary in 2011 was P500,000. The employee is expected to live 15 years after retiring and will receive first annual pension payment one year after retirement. The discount rate is 8%. The relevant present value and future value factors are:
Future value of 1 at 3% for 25 periods 2.094
PV of an ordinary annuity of 1 at 8% for 15 periods 8.559
PV of 1 at 8% for 25 periods 0.146
What is the projected benefit obligation on December 31, 2011? a. 209,400 b. 261,669 c. 100,000 d. 124,961
Answer: b
Solution:
Future salary – PBO (500,000 x 2.094) 1,047,000
Annual pension