Dean has earned $70,000 annually for the past five years working as an architect for WCC Incorporated Under WCC's defined benefit plan (which uses a seven-year graded vesting schedule)employees earn a benefit equal to 3.5 percent of the average of their three highest annual salaries for every full year of service with WCC. Dean has worked for five full years for WCC and his vesting percentage is 60 percent. What is Dean's vested benefit (or annual retirement benefit he has earned so far)?
A)$12,250.
B)$42,000.
C)$7,350.
D)$0.

Question

Quizplus · Accepted Answer

Dean's highest annual salary for the past five years is $70,000, and since he has worked for five years, we use this salary to calculate his benefit. The formula for the benefit is 3.5% of the average of the three highest annual salaries times the number of years worked. Since his salary has been constant, the average of his three highest annual salaries is also $70,000. Thus, his annual retirement benefit earned so far is 3.5% of $70,000 times 5 years = 0.035 * $70,000 * 5 = $12,250. However, because he is only 60% vested, we multiply $12,250 by 60% to get his vested benefit: $12,250 * 0.60 = $7,350.

Dean Has Earned $70,000 Annually for the Past Five Years