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4. (30 points) (Pension Benefits) A newly employed person, at exact age 45, has a choice between two pension plans: (Plan A) The employer makes
4. (30 points) (Pension Benefits) A newly employed person, at exact age 45, has a choice between two pension plans: (Plan A) The employer makes contributions of 15% of salary each year (no employee contribution). These contributions are made at the beginning of each year and earn 4% per year. Accumulated contributions at retirement are used to purchase a monthly life annuity due. (Plan B) The annual pension benefit is 2% of the two-year final average salary for each year of service. These benefits are payable on a monthly basis, at the beginning of each month. You are given: (i) ) = 10.14 (ii) Annual salary increases by 4% each year exactly on the participant's birthday and salary remains constant till the next year. (iii) Retirement occurs at age 65 only. Calculate the ratio of the monthly payments under Plan A to Plan B. Which one is more preferable for the employee within the described conditions? (HINT: Here the employee would base their decision on the condition that they would survive the term. Also, yearly salary is distributed to each month of the year in equal amounts.) 4. (30 points) (Pension Benefits) A newly employed person, at exact age 45, has a choice between two pension plans: (Plan A) The employer makes contributions of 15% of salary each year (no employee contribution). These contributions are made at the beginning of each year and earn 4% per year. Accumulated contributions at retirement are used to purchase a monthly life annuity due. (Plan B) The annual pension benefit is 2% of the two-year final average salary for each year of service. These benefits are payable on a monthly basis, at the beginning of each month. You are given: (i) ) = 10.14 (ii) Annual salary increases by 4% each year exactly on the participant's birthday and salary remains constant till the next year. (iii) Retirement occurs at age 65 only. Calculate the ratio of the monthly payments under Plan A to Plan B. Which one is more preferable for the employee within the described conditions? (HINT: Here the employee would base their decision on the condition that they would survive the term. Also, yearly salary is distributed to each month of the year in equal amounts.)
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