Expert answer:Human Resource Management Retirement Questions

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20171003020051fin_422_week_2_assignment.docx

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3. Your company currently offers a defined benefit plan using the following formula for
retirement benefits at age 65: final average pay, years of service, and a 2 percent
replacement income factor. There is a 2 percent actuarial reduction per year for
retirement between the ages of 55 (the earliest date on which one can retire) and 65.
There is no actuarial cost for the mandatory 50 percent spouse option arising from age
variations between the spouses. Your CFO considers the plan too costly. You decide to
keep the DBP as is for your current employees, but offer a modified DBP for new hires.
The new hire plan will continue to encourage long and productive service, but will
reduce the cost to the company. Briefly identify and describe three appropriate design
changes you would make for the new hire plan that would best generate these results.
4. An executive of a company that offers a traditional and qualified defined benefit plan
is now 65 years old and applies for retirement. His average final pay is $150,000 and
his average final bonus is $75,000. The DBP uses a 2 percent income replacement
factor, credits for all years of service, and allows for full retirement at age 65. The
executive has 30 years of service and is fully vested. Calculate the pension he will
receive from the qualified defined benefit plan.
20. Suppose two persons retire from the same company and are participants of the
same DBP. Their calculated annuities are the same, but when they elected instead to
receive lump sums, the amounts were different. What is the most likely reason for this
difference?
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