Question

Silver Springs Company has an unfunded retiree health care plan. Each of the company's four employees has been with the organization since its inception at the beginning of 2020. As of the end of 2021, the actuary estimates the total net cost of providing benefits to employees during their retirement years to have a present value of $196,000. Each of the employees will become fully eligible for benefits after 28 more years of service, but aren't expected to retire for 30 more years. The interest rate is 8%. Required: 1. What is the expected postretirement benefit obligation at the end of 2021? 2. What is the accumulated postretirement benefit obligation at the end of 2021?

Answer 1

Answer:

1. The expected post-retirement benefit obligation at the end of 2021 is $196,000, the present value of total net costs of providing health care benefits.

2. Calculation of the accumulated post-retirement benefit obligation at the end of 2021 is as below:

APBO = EPBO * Full eligibility period / Attribution period

APBO = $196,000 * 2 / (2+28)

APBO = $196,000 * 2/30

APBO = $13066.66666666667

APBO = $13,066.67

Thus, accumulated post-retirement benefit obligation at the end of 2021 is $13,066.67.