When Enola and everyone stops working at FMI (in 26 years), what is the future single premium that an insurer would charge for FMI’s entire pension risk, based on our discussion in class about the cost of retirement (annuity) income? For each year that a person retires before (after) age 65, increase (decrease) the cost of the annuity by 2 percent.
To accumulate the amount you calculated above, how much should FMI contribute each year to the DB plan? Assume that FMI has not set aside any money yet for the DB plan. You should assume two different interest rates (3% and 6%) and provide two answers to this part.
What is the Present Value (@ a 3% discount rate) of the retirement benefits from the DB plan, assuming all employees will receive the DB pension income for exactly 15 years?