Reference no: EM132916449

Question - Dan started work for the Police Department this year and is a member of a defined benefit pension plan. Zack just turned 27 years old. He expects to retire in 30 years at age 57. At that time, the Police Dept. pension plan will pay Zack annual pension payments equal to 2.0% of his final year's salary for each year of services rendered. The pension payments will continue until Zack's death, which actuaries expect to be when he turns 95 years old. For the current year, Zack will earn $45,000 this year, and this salary rate is expected to increase 2.3% per year. Assume that the Police Department uses a 5.0% interest rate for both its accrued pension obligations and the return on its pension assets.

What would the present value of the assets required when Zack retires, i.e., the accrued benefit obligation required for Zack's pension just prior to his retirement at age 57?