Question

Chapter 13

1) Alicia has been working for JMM Corp. for 32 years. Alicia participates in JMM"s defined benefit plan. Under the plan. for every year of service for JMM she is to receive 2 percent of the average salary of her three highest years of compensation from JMM. She retired on January 1, 2018. Before retirement, her annual salary was $630,000. $660,000, and $690,000 for 2015,2016, and 2017. What is the maximum benefit Alicia can receive in 2018?

2) Marissa participates in her employer's nonqualified deferred compensation plan. For 2018, she is deferring 15 percent of her $405,000 annual salary.

Assuming this is her only source of income and her marginal income tax rate is 32 percent, how much tax does Marissa save in 2018 by deferring this come? (Ignore payroll taxes)

Answer 1

1)

The maximum limit of benefit paid to an employee is less or of (1) the employee’s average compensation of three highest years of salary or (2) $276,000 for 2018

Average salary (630000+660000+690000)/3 = 660000

Employee eligible as 2$ for 32 years                 384000

Therefore, maximum benefit Alicia can receive is $276,000

2)
Total annual salary		405000
contribution in non qualified compensation plan -16%	405000*15%	60750
Marissa savings by deferring this income	60750*32%	19440