Question

ELO manufacturing is looking to hire a new plant supervisor. They have 2 qualified candidates, Charlie, 43 and Kevin, 36. Both would have a starting salary of $62,000. Each could expect a 3% cost of living raise each year. ELO Inc. also has a defined Benefit Pension plan that pays 35% of final salary as a benefit, for all employees with 20 years (or more) of service. They add a 2% increase in pension multiplier for each additional year of service after 20. ELO also has a "mandatory" retirement age of 66 for all plant jobs. Assume both candidates have a 20 year life expectancy at age 66. What is the expected annual contribution to the retirement plan that each candidate would accrue if investments in the pension fund earned 6% and each candidate works until age 66?

Answer 1

INPUT
retirement age	66	years left	years after 20 years of service
Charlie	43	23	3
Kevin	36	30	10

			years after 20 years of service
	%share	35%	1	2	3	4	5	6	7	8	9	10
salary at retirement for C	111979	39192.614	39976.46607	41591.5	44137.24877
salary at retirement for K	111979	39192.614	39976.46607	41591.5	44137.24877	47775.58	52748.1	59402.93	68235.29	79948.52	95545.88	116469.9
years left		10	9	8	7	6	5	4	3	2	1	0
total amount for C		46679.03	44917.55727	44087	*amount grown with 6% per annum for 3 years and 10 years respectively for C and K
total amount for K		70188.002	67539.39828	66290.6	66366.10279	67770.57	70588.85	74994.82	81269.32	89830.15	101278.6	116469.9
accrued amount for C	135684
accrued amount for K	872586

The amount shown in the last table blue and green is the answer. We have calculated the amount contributed after completing 20 years and then grown it at 2% per annum(grey rows) and then we have calculated the future values of each of these contributions at the rate of 6% per annum which are then summed to get the final table.