Orion Steel Provides a Defined Benefit Pension Plan for Its

question 46

Essay

Orion Steel provides a defined benefit pension plan for its employees. One of its employees, Gail Camden, who just turned 45 years old, expects to retire at age 65. At that time, the pension plan will pay Gail annual pension payments equal to 5% of her final year's salary for each year of services rendered by Gail. The pension payments will continue until Gail's death, which actuaries expect to be when she turns 95 years old. Gail is currently earning $35,000 per year, and this rate is not expected to increase due to the poor state of the steel industry. Orion Steel uses an 8 % interest rate for its pension obligations.
Required:
Determine the current service cost for Gail Camden's pension for the past year (the year just before she turned 45).

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