Question
Javier recently graduated and started his career with DNL Inc. DNL provides a defined benefit plan to all employees. According to the terms of the
Javier recently graduated and started his career with DNL Inc. DNL provides a defined benefit plan to all employees. According to the terms of the plan, for each full year of service working for the employer, employees receive a benefit of 1.5 percent of their average salary over their highest three years of compensation from the company. Employees may accrue only 30 years of benefit under the plan (45 percent). Determine Javiers annual benefit on retirement, before taxes, under each of the following scenarios
EXHIBIT 13-1 Defined Benefit Plans Minimum Vesting Schedules*
Full Years of Service | 5-Year Cliff | 7-Year Graded |
---|---|---|
1 | 0% | 0% |
2 | 0 | 0 |
3 | 0 | 20 |
4 | 0 | 40 |
5 | 100 | 60 |
6 | N/A | 80 |
7 | N/A | 100 |
*Percent of employee benefit no longer subject to forfeiture. Source: 411(a).
Question: Javier works for DNL for 32 years and three months before retiring. Javiers annual salary was $217,500, $227,500, $235,900, and $246,000 for his final four years of employment. Note that in the year he retired he didnt work for the entire year, so he received only a portion of the annual salary. What is the annual before-tax benefit?
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