Find the ratio of the annual income under the dc plan

Reference no: EM131001711

An employee starts employment in a firm at age 35 and is offered a choice of either a DC or a DB plan. In the DC plan, contributions of 15% of salary are accumulated with interest at 4% until age 65 and then used to buy a life annuity. Under the DB plan, the employee is given an annual amount, beginning at age 65 of 1.8% of their 3 years average salary times the number of years of service. If the cost of a 1-unit life annuity at age 65 is 10, and salaries increase by 4% per year, find the ratio of the annual income under the DC plan to that of the DB plan, for an employee who remains in the plan until age 65.

Reference no: EM131001711

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