Question

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Javier recently graduated and started his career with DNL Incorporated DNL provides a defined benefit plan to all employees. According to the terms of the plan, for each full year of service working for the employer, employees receive a benefit of 1.5 percent of their average salary over their highest three years of compensation from the company. Employees may accrue only 30 years of benefit under the plan (45 percent).
Determine Javier's annual benefit on retirement, before taxes, under each of the following scenarios (Use Exhibit 13-1): Note: Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount. Leave no answers blank. Enter zero if applicable.

Answer 1

The question involves calculating a retired employee's pension benefits based on a defined benefit plan, demonstrating the financial options for a single father named Jonathon balancing work and welfare, and understanding the impact of inflation on retiree pensions.

Step-by-step explanation:

The question primarily deals with calculating the retired employee's pension benefits under a defined benefit plan from his employer, DNL Incorporated. This calculation is based on an accrual rate of 1.5% of the employee's average salary from the highest three earning years for every full year of service, with a maximum of 30 years of service.

Jonathon's Work and Welfare Benefits Table

Furthermore, we have a situation involving Jonathon, a single father, where we need to construct a table demonstrating his possible income from work as a server at $6 per hour and his welfare benefits. Since for every dollar Jonathon earns his welfare benefit decreases by a dollar, we have to present a clear picture of his earnings versus government support. Note that a labour-leisure diagram will visually represent the trade-off between Jonathon's labour, in terms of hours worked and his leisure time.

When creating such a table or diagram, it's crucial to consider the potential impact of taxation, welfare reduction, and Jonathon's need for a balance between work and personal time. Additionally, it will illustrate the economic concept of substitution between labour and leisure as these financial incentives change.

Retirees' Fixed Incomes and Inflation Problems

An important aspect to consider regarding pensions, as mentioned in the provided context, is the effect of inflation on a retiree's purchasing power over time when they have a fixed pension income. This is due to most pensions being of the 'defined benefit' type, which means they are set as a nominal dollar amount and are not typically adjusted for inflation, leading to a diminishing real income as the retiree ages.