Question: Suppose that in a certain defined benefit pension plan a) Employees work for 45 years earning wages that increase at a real rate of 2%

Suppose that in a certain defined benefit pension plan

a) Employees work for 45 years earning wages that increase at a real rate of 2%

b) They retire with a pension equal to 70% of their final salary. This pension increases at the rate of inflation minus 1%.

c) The pension is received for 18 years

d) The pension fund's income is invested in bonds that earn the inflation rate plus 1.5%

Estimate the percentage of an employee's salary that must be contributed to the pension plan if it is to remain solvent.

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