# Classified Electronics: Postretirement Benefit Calculations ## Key Data - **Employees**: 3 - **Present Value of Total Benefit Obligation at end of 2024**: \$54,000 (for all 3 employees) - **Years of Service as of end of 2024**: 2 years (2023, 2024) - **Years until full eligibility**: 25 more years (total 27 years needed) - **Years until retirement**: 35 more years (total 37 years from hire) - **Discount rate**: 4% --- ## 1. Expected Postretirement Benefit Obligation (EPBO) at end of 2024 **Definition**: The EPBO is the actuarial present value at the end of the period of all future benefits expected to be paid to employees (including benefits expected to be earned in the future), assuming continued employment. - The actuary's present value of \$54,000 at the end of 2024 **is the EPBO at 2024**. **Answer:** **EPBO at end of 2024 = \$54,000** --- ## 2. Accumulated Postretirement Benefit Obligation (APBO) at end of 2024 **Definition:** APBO is the portion of the EPBO attributed to employee service rendered to date (i.e., benefits earned to date). - Formula: \[ \text{APBO}_{2024} = \text{EPBO}_{2024} \times \frac{\text{Years of service to date}}{\text{Total service years at eligibility}} \] \[ = \$54,000 \times \frac{2}{27} \] - Calculation: \[ \$54,000 \times \frac{2}{27} = \$4,000 \] **Answer:** **APBO at end of 2024 = \$4,000** --- ## 3. Expected Postretirement Benefit Obligation (EPBO) at end of 2025 - The EPBO at 2025 is the present value, as of end of 2025, of all future benefits expected to be paid. - It's the 2024 amount **accreted for one year at the discount rate**: \[ \text{EPBO}_{2025} = \text{EPBO}_{2024} \times (1 + r) \] \[ = \$54,000 \times 1.04 = \$56,160 \] **Answer:** **EPBO at end of 2025 = \$56,160** --- ## 4. Accumulated Postretirement Benefit Obligation (APBO) at end of 2025 - APBO for 2025 = EPBO at 2025 × Proportion of service rendered as of end of 2025 \[ \text{APBO}_{2025} = \text{EPBO}_{2025} \times \frac{3}{27} \] \[ = \$56,160 \times \frac{3}{27} = \$56,160 \times 0.1111 = \$6,240 \] **Answer:** **APBO at end of 2025 = \$6,240** --- ## Summary Table | Year | EPBO | APBO | |------|-----------|----------| |2024 | \$54,000 | \$4,000 | |2025 | \$56,160 | \$6,240 | --- ### Notes - **EPBO** increases each year by the discount rate (interest cost). - **APBO** increases each year both as a function of EPBO growth and as employees complete more service years toward eligibility.