Question

James has earned $60,000 annually for the past three years working at abc inc. under abc's defined benefit plan (which uses a 7-year graded vesting schedule) employees earn a benefit equal to 4 percent for every year of service, of the average salary for their three highest full years of compensation with abc. james has worked for five full years for abc and his vesting percentage (based on the 7-year graded vesting schedule) is 60 percent. what is james's vested benefit (or annual retirement benefit he has earned so far)?

Answer 1

Answer: $7,200

Step-by-step explanation:

In calculating James's vested benefit let us pick certain things from the question.

1. The benefit is 4% of the average of the 3 highest salaries.

2. The 4% is then applied go each year they have worked at abc.

James had worked for 3 years and was paid $60,000 each of those years.

The average therefore is,

= (60,000 + 60,000 + 60,000) / 3

= $60,000

$60,000 is the average.

Applying 4% to this would be,

= 4% * 60,000

= $2,400.

The 4% that we just calculated is accrued for every year employees have worked with abc. James has worked 3 years so,

= 3 * 2,400

= $7,200

James's vested benefit is therefore $7,200.