Question
You have been hired as a benefit consultant by Pete McNown, the owner of Petes Pet Emporium. He wants to establish a retirement plan for
You have been hired as a benefit consultant by Pete McNown, the owner of Petes Pet Emporium. He wants to establish a retirement plan for himself and his two employees, Ron and Aaron. Pete has provided the following information:
The retirement plan is to be based upon annual salary for the LAST year of service before retirement
i.The plan will provide for 60% of Petes last year salary and,
ii.The plan will provide for 45% of Ron and Aarons last year salary
iii.In the past, Pete has given himself and each employee a 3% year-end salary increase. Pete plans to continue this practice.
The plan will make annual payments to the employees at the beginning of each year for 20 years from the date of retirement.
Pete wishes to fund the plan by making 15 annual deposits beginning January 1, 2010
Invested funds will earn 10% compounded annually until January 1, 2025. At that time, the funds will be moved to a safer investment vehicle with an annual return of 5%.
Here is specific information on each employee:
i.Pete McNown; current salary of $52,000, estimated retirement 01/01/25
ii.Ron Farrell; current salary of $41,000, estimated retirement 01/01/30
iii.Aaron Cavey; current salary of $39,000 estimated retirement 01/01/35
Given the above information, please answer the following questions:
i.What will be the annual retirement benefit for each plan participant?
ii.What amount must be on deposit at the end of 15 years to ensure that all benefits will be paid?
iii.What is the amount of each annual deposit Pete must make to the retirement plan?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started