Suppose that in a certain defined benefit pension plan
a. Employees work for 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 received 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. (Hint: Do all calculations in real rather than nominal dollars.)