Pension Analysis-Choose Your Retirement Option . You are a newly hired employee for the State of liols and you are required to choose retirement plan options . Your two alternatives are: o The state's defined benefit plan o The state's defined contribution plan under which the state will contribute each year an amount equal to 8% of your salary (contribution made at the end of each year) . General information: State is assuming salaries wil rise 3% a year (3% increase takes effect on January 1" of each year) Interest rate used in calculations is 6% o You will retire after 40 years (December 31, 2055) You will draw retirement pay for 20 years Retirement pay will be made at the end of each year o o o The defined benefit plan will provide annual retirement benefits determined by the following formula: 1.5%xyearsof service salary atretirement- REQUIRED:(Use Pazes 3&4 1. Defined Benefit Plan . You were hired at the beginning of 2016 at a salary of $100,000. If you choose the state's defined benefit plan and projections hold true: * What will be your annual retirement pay? What will be the value of your retirement benefits on December 31, 2055? (Present value of the projected 20 retirement payments as of December 31, 2055) (PV Ordinary Annuity) Defined Contribution Plan 2. The rate of return on your retirement plan assets will be 6% compounded annually What will be the future value of your plan assets as of the anticipated retirement date (December 31, 2055) (Using Excel may be helpful) Assuming you will live 20 years after retirement and you would like your retirement distribution to be received in equal amounts at the end of each year of retirement -what will be your annual retirement pay (assuming continuing investment of remaining assets at 6%) (FV Ordinary Annuity) . 3. General Questions Based on your calculations, which plan did you choose? Why? Besides the monetary calculations and results, Indicate what other factors would you consider for each alternative " Pension Analysis- Choose Your Retirement Option Excel- Calculation of Defined Contribution Plan Ending Balance as of 12/31/55 EndofYear YearstoRetirementL-Salary-Contribution |FutureValueatRetirement 2016 100,000.00 -C2*0.08 39 D3 1.06AB3 2017 21 9100.0 -B2-1 End of Year Years to Retirement Salary Contribution Future Value at Retirement $ 8,000.00$77,628.06 103,000.00 s 8,240.00$75,43104 39$100,000.00 2017 2016 38 Total Value of Retirement Plan Assets at 12/31/55