Calculate Current Service Costs

question 56

Essay

Calculate current service costs
Joe Smith, age 45, begins employment with Square Corporation on January 1, 2020 at a starting salary of $ 45,000. It is expected that Joe will work for the company for 20 years, retiring on December 31, 2039, when Joe is 65 years old. It is expected that his salary at retirement will be $ 120,000. Further assume that mortality tables indicate the life expectancy of someone age 65 in 2039 is 12 years.
Square Corporation sponsors a defined benefit pension plan with the following formula
Annual pension benefit on retirement = 2% of salary for each year of service, or 2% final salary x years of service.
Assume a discount rate of 6%
Instructions
Determine the current service cost for Joe Smith at December 31, 2019.

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