A worker aged 45 has a choice between 2 pension plans:

Plan 1 The employer makes contributions of 15% of salary each year (with no employee contribution). The contributions are made at the beginning of each year and earn 4% per year. The accumulated contributions at retirement are then used to purchase a monthly life annuity due.

Plan 2 The annual pension benefit is 2% of the 2-year final average salary for each year of service. These benefits are payable on a monthly basis, at the beginning of each month.

The following is provided:

i. a(12)65 = 10.14

ii. Annual salary increases by 4$ each year exactly on the participants's birthday and salary remains constant till the next year.

iii. Retirement occurs at age 65 only.

What are the monthly payments of plan 1 and plan 2?

Answer rating: 100% (QA)

Assuming the workers salary is 50000 Plan 1 The employer makes contributions of 15 of salary each ye... View the full answer