Final answer:
The student's question discusses a defined benefit pension plan and the associated calculations for determining future values of payments based on a given interest rate. The concept explores the shift from traditional defined benefit plans to defined contribution plans like 401(k)s, which offer better inflation protection and investment returns.
Step-by-step explanation:
The student's question pertains to a defined benefit pension plan by Crane Company and involves calculations based on provided actuarial data for the year 2025. To calculate the future value of the payments received from the firm, one can use the formula Future value received years in the future = (1 + Interest rate)numbers of years t. Applying this formula:
- $15 million is received in the present, so its future value is $15 million itself.
- $20 million received in one year will have a future value of $20 million multiplied by (1 + 0.075)1 due to the 7.5% interest rate.
- $25 million received in two years will have a future value of $25 million multiplied by (1 + 0.075)2.
The actual return on plan assets was 6.8% against an expected 7.5%, which could potentially affect the payouts from the pension plan. In context to the broader standpoint, pensions, which are defined benefits plans, are being supplanted by defined contribution plans like 401(k)s and 403(b)s due to their viability in offering real rates of return and protection against inflation.