Present

value.

The State of Confusion wants to change the current retirement policy for state employees. To do so, however, the state must pay the current pension fund members the present value of their promised future payments. There are

200,000

current employees in the state pension fund. The average employee is

22

years away from retirement, and the average promised future retirement benefit is

$360,000

per employee. If the state has a discount rate of

7%

on all its funds, how much money will the state have to pay to the employees before it can start a new pension plan?

How much money will the state have to pay to the employees before it can start a new pension plan?