Suppose a new employee is promised a pension payment of $8000 in the twenty-fourth year after joining the firm. The current pension contribution is $1200 a year. Assuming a six percent rate of return, their pension plan is said to be

Question

Quizplus · Accepted Answer

If the pension plan were fully funded, it would mean that the amount of money in the plan would be sufficient to cover the promised benefit without the need for any additional funding. However, since the annual contribution of $1200 is not enough to cover the full $8000 benefit, the plan is partly funded. A fully vested plan refers to an employee's right to receive the full promised benefit after meeting certain conditions, which is not relevant to this scenario. Therefore, the correct answer is B - partly funded.

Suppose a New Employee Is Promised a Pension Payment of $8000