Problem: Suppose that in a certain defined benefit pension plan:
A. Employees work 45 years earning wages that increase at a real rate of 2%
B. They retire with a pension equal to 70% of their final salary. This pension increases at the rate of inflation minus 1%
C. The pension is receives for 18 years.
D. The pension fund's income is invested in bonds which earn the inflation rate plus 1.5%
Estimate the percentage of an employee's salary that must be contributed to the pension plan if it is to remain solvent.