3) Can you simply compare the values in (1) and (2) above to determine how much better off this person would be if he used a 401(k) to save for retirement? Explain.UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGNCOLLEGE OF COMMERCE AND BUSINESS ADMINISTRATIOND E P A R T M E N T O F F I N A N C E Assignment 3Deferred CompensationFinance/LIR 360Fall 2002 Due: November 15,2002Please detach and turn in only the answer sheet for thisassignment. Keep your worksheets and the remainder of theassignment for reference.A 28 year old manager at an ice cream factory is putting aside money for hisretirement at age 72. His salary is $50,000, but he knows that he will get a$5,000 bonus at the end of each year. While he is working, he is in the 28percent Federal tax bracket and the 3 percent state tax bracket. He expectsto be in the 15 percent Federal tax bracket and to live in a state withoutincome taxes after retirement. (For this question, ignore Social Securitytaxes.) Show how much money he would have in 44 years in each fund ifhe:1) allocated his $5,000 bonus each year to retirement savings byinvesting the after tax proceeds in a corporate bond mutual fundthat earns 9 percent interest each year. Assume he reinveststhe after tax interest each year in the same fund.2) had the company establish a qualified profit sharing plan for his$5,000 bonus each year. Assume that the plan would earn a 9percent annual return. 3) Can you simply compare the values in (1) and (2) above todetermine how much better off this person would be if he used a401(k) to save for retirement? Explain.A company has 31 employees with salaries for 2002 as follows:Number ofEmployees Salary 401(k) ADP 15 $22,0003% 10 30,000 7% 5 43,00012% 1 100,000 ?4) Calculate the ADP of the non-HCE.5) What is the most that the employee who earns $100,000 cancontribute to the company's 401(k) plan, in dollars?6) Johnny Jobchanger, age 28, worked for five years for a company thathas a defined benefit pension plan covering all full time workers. Theplan has a time neutral accrual rate of 2.5 percent of final salary forevery year of service. This benefit is payable at age 65. Johnny's finalsalary at this company was $30,000. Johnny has no idea what thecompany's vesting schedule is. What is the least amount that Johnnywill receive when he reaches 65 as a pension benefit from thiscompany?7) Richie Rich, age 48, has a salary of $250,000 in 2002. He works for acompany that has a defined contribution pension plan that isintegrated with Social Security. The company contributes 7.5% ofcompensation up to the wage base, with a higher amount forcompensation in excess of the wage base. For 2002, what is the mostthat the company can contribute to the defined contribution plan forRichie?8) A company has a defined benefit pension plan that is integrated withSocial Security based on the offset approach. The monthly pensionbenefit is 2% per year of service times the final average monthlycompensation, less 3/4 % of participant’s final average monthlycompensation for the first 35 years of service. If an employee retiresin 2002 at age 65 with 32 years of service and a final average monthlycompensation of $4,000, what will the employee’s monthly pensionbenefit be?Each of the following individuals has $150,000 in a profit sharing plan thatallows lump sum or periodic distributions. Assume each individual is in the28 percent Federal tax bracket and 3 percent state tax bracket. 9) An employee, who was born 4/7/52 and has a salary of $35,000,withdraws $20,000 in 2002 to pay for her son's college education. How much, in dollars, does the employee pay in taxes and earlywithdrawal penalties (if applicable) in this situation? 10) A retiree, born 2/9/26, fails to withdraw anything from her plan during2002, although she had been making withdrawals in prior years.According to IRS tables, her life expectancy is 10 years. How much isher penalty for not taking anything out this year?Extra Credit11) For the situation described for the first 3 questions, what would the tax rate at retirement have to be before the qualified plan would not be the preferred alternative?Finance/LIR 360Assignment 3 - Answer Sheet(No need to show work here. List your answers only.)Name:___________________________Due: November 15,