JTD Began Working for XYZ at Age 45 and Immediately

question 35

Essay

JTD began working for XYZ at age 45 and immediately qualified for the company pension plan.The retirement age in the company is 65 (i.e., 20 full years of employment for JTD).The pension specifies a $30,000 annual (year-end)pension benefit for JTD and the life expectancy is age 80 (i.e., the pension benefit will be paid for 15 years).Assume a constant 8% interest rate during the 20 working years, and a 7% constant rate during the retirement years per the actuarial estimates (assume all cash flows at year-end).XYZ plans to fund a constant amount per period at each year-end during the employment period.
Required:
(a)What amount of funds should be in the pension fund at the beginning of the first retirement year?
(b)What amount should XYZ pay to the funding agency each year-end during the employment period?
(c)Is it possible to determine pension expense for the first year of the plan?

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Definitions:

Fixed Order Interval

A replenishment method where orders are placed at fixed intervals, ensuring a periodic review and stock refill.

EOQ Model

Economic Order Quantity Model, an inventory management tool used to determine the optimal order size that minimizes total inventory costs including holding and ordering costs.

SKUs

Stock Keeping Units, a unique identifier for each distinct product and service that can be purchased.

Inventory Management

The supervision of non-capitalized assets and stock items, focusing on ordering, storing, and using a company's inventory.