Javier recently graduated and started his career with DNL Inc. DNL provides a de

Question

Javier recently graduated and started his career with DNL Inc. DNL provides a defined benefit plan to all employees. According to the terms of the plan, for each full year of service working for the employer, employees receive a benefit of 1.5 percent of their average salary over their highest three years of compensation from the company. Employees may accrue only 30 years of benefit under the plan (45 percent). Javier works for DNL for six years and three months before he leaves for another job. Javier’s annual salary was $80,000, $85,000, $90,000, and $95,000 for years 4, 5, 6, and 7 respectively. DNL uses a five-year cliff vesting schedule. Determine Javier’s annual benefit on retirement, before taxes.

Explanation / Answer

NO OF YEARS OF COMPLETED SERVICE= 6 YEARS 1.5 percent for each full years of completed service= 6*1.5=9 percent DNL uses a five-year cliff vesting schedule. So jaiver will get full benefits. AVERAGE SALARY=(85000+90000+95000)/3 90000 Javier’s annual benefit on retirement, before taxes. = $90000*9% = $8100

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