Question

Jake has worked for GT for the last 20 years and been a participant in its defined benefit plan. In the last ten years, his salary has increased significantly. Over the last ten years, his compensation was $290,000, $100,000, $120,000, $100,000, $240,000, $200,000, $160,000, $180,000, $150,000, and $210,000. In 2019, what is the most that he could receive as a pension payment?

A. $246,667.

B. $225,000.

C. $200,000.

D. $280,000.

Answer 1

Answer -

Step - (1) - Relevant note on Defined benefit plan - Benefit limits -

The annual benefit for a participant cannot exceed the lesser of:

• 100% of the plan participant’s average compensation for the highest 3 consecutive calendar years; or
• $225000 for calendar year 2019.

.

Step - (2) - Calculation of amount of Jake's pension payment -

Particulars	Explanation	Amount ($)
Jake's pension payment	The maximum distribution from a defined benefit plan in 2019 is the lesser of $225000 or the average of the three highest consecutive years of compensation. The average of the three highest consecutive years of compensation = [($240000+$200000+$160000) / 3] = $200000.	200000

Hence, Option - (C) is Correct.