Question

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 consecutive calendar years of compensation from JMM. She retired on January 1, 2020. Before retirement, her annual salary was $570,000, $600,000, and $630,000 for 2017, 2018, and 2019. What is the maximum benefit Alicia can receive in 2020?

Answer 1

Alicia will receive = 64% ( 32 Years * 2% per year ) of her average salary of last 3 Years

Average salary of Last 3 Years = [($570,000+ $600,000+ $630,000 ) / 3]

= $1,800,000 / 3

Average salary of Last 3 Years = $600,000

Alicia's share = Average salary of Last 3 Years * 64%

= $600,000 * 64%

Alicia's share = $384,000

The annual benefit which a employee under Defined Benefit Plan is the lesser of these two:

1. Employee's average compensation of last three years's salary ( Alicia's share = $384,000)

maximum Benefit wll be $384,000

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