2.Jane Doe is considering job offers from ABC and XYZ companies.Jane is 45 years old.ABC sponsors a profit sharing plan and XYZ sponsors a 401(k) plan.

Jane wants to figure out which company has the better plan for her.Details for the plans are listed below.

ABC Company - Employees are eligible after one year of service.The company contributes 3% of pay to each participant's account plus an additional amount

based on company performance.The average additional amount each year for the past 15 years has been 4% of pay.

XYZ Company - Employees are eligible to participate immediately.Employees can contribute up to 15% of pay to the plan.XYZ will match all contributions up to 5% of pay.

a.Using the tables below, project Jane's account balance to age 65 under both company plans assuming ABC maintains the 4% profit sharing contribution.

You will need to make assumptions about Jane's salary, deferral percentage and investment income.

b.Which plan is better for Jane?Provide your rationale.

1. Go to the web sites for Fidelity Investments, Vanguard Group, American Funds and T Rowe Price. a. Record the asset allocation and expense ratio for each vendor's target date 2020, 2025 and 2030 retirement fund in the table below. Target Date Fidelity 2020 2025 2030 Vanguard 2020 2025 2030 American Funds 2020 2025 2030 T Rowe Price 2020 2025 2030 Expense Ratio Allocation Fund Name International Equity 22.22% 24.03% 28.12% Bonds 29.20% 25.51% 17.72% Short-term & Total Other 8.97% 100.00% 6.67% 100.00% 1.06% 100.00% 0.62% 0.66% 0.70% FFFDX FFTWX FFFEX 55.61% 64.22% 71.73% 44.38% 35.78% 28.27% 0.01% 100.00% 0.00% 100.00% 0.00% 100.00% 0.14% 0.14% 0.18% VTWNX VTTVX VTHRX 34.00% 39.20% 45.60% 15.50% 19.60% 24.30% 44.30% 34.70% 23.40% 6.20% 100.00% 6.50% 100.00% 6.70% 100.00% 0.74% 0.76% 0.76% AACTX AADTX AAETX 37.70% 42.50% 47.10% 20.00% 22.90% 25.60% 39.60% 31.60% 24.20% 2.70% 100.00% 3.00% 100.00% 3.10% 100.00% 0.66% 0.69% 0.72% TRRBX TRRHX TRRCX Domestic Equity 39.61% 43.79% 53.10% Do any of the funded charge a sales fee (a.k.a. "load" fund) ? Y / N N If yes, which fund(s)? b. How do the allocations and expense ratios between the diferent funds compare to each other? mutual fund's expense ratio tells us the percentage of a fund's assets that are used to run the fund. Vanguard seems to be far lower than the others, so vanguard has lower expenses but it also leads to good return. Maybe because the Vanguard isn't a for-profit company and it has no shareholders who want dividends vanguard also holds the least stock since stock is more volatile and the other holds more stocks even when close to the retirement date.Fidelity investors who took all that extra risk did not even match the returns of the much less volatile Vanguard moderate portfolio since equity is much higher than bond. 1 2. Jane Doe is considering job ofers from ABC and XYZ companies. Jane is 45 years old. ABC sponsors a profit sharing plan and XYZ sponsors a 401(k) plan. Jane wants to figure out which company has the better plan for her. Details for the plans are listed below. ABC Company - Employees are eligible after one year of service. The company contributes 3% of pay to each participant's account plus an additional amount based on company performance. The average additional amount each year for the past 15 years has been 4% of pay. XYZ Company - Employees are eligible to participate immediately. Employees can contribute up to 15% of pay to the plan. XYZ will match all contributions up to 5% of pay. a. Using the tables below, project Jane's account balance to age 65 under both company plans assuming ABC maintains the 4% profit sharing contribution. You will need to make assumptions about Jane's salary, deferral percentage and investment income. b. Which plan is better for Jane? Provide your rationale. Company ABC Age Annual Salary Increase 0% Salary 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Employee Deferral 0% ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### Company XYZ Employer Match 0% - Employer Contribution Profit Sharing 0% 4% - - Investment Income 0% - Account Balance EOY Employee Deferral 0% - - 2 Employer Match 0% - Employer Contribution Profit Sharing 0% 4% - - Investment Income 0% - Account Balance EOY - 3. Jane and John Doe are twins. Jane saves $10,000 per year from age 25 to 34 and nothing fr a. Assume that Jane and John both earn 6.5% annual investment income. Who has more mon b. How does your answer change if annual investment income is 5% or 7.5%? Jane Inv Income Savings 6.50% Balance 25 10,000 650 10,650 26 20,650 1,342 21,992 27 31,992 2,079 34,071 28 44,071 2,865 46,936 29 56,936 3,701 60,637 30 70,637 4,591 75,228 31 85,228 5,540 90,768 32 100,768 6,549 107,317 33 117,317 7,626 124,943 34 134,943 8,771 143,714 35 143,714 36 143,714 37 143,714 38 143,714 39 143,714 40 143,714 41 143,714 42 143,714 43 143,714 44 143,714 45 143,714 46 143,714 47 143,714 48 143,714 49 143,714 50 143,714 51 143,714 52 143,714 53 143,714 54 143,714 55 143,714 56 143,714 57 143,714 58 143,714 59 143,714 3 John Savings 10,000 20,650 31,992 44,071 56,936 70,637 85,228 100,768 11,737 134,943 153,714 173,705 194,996 217,671 241,820 267,538 294,928 324,098 355,164 388,250 423,486 461,013 500,979 543,543 588,330 Inv Income 6.50% 650 1,342 2,079 2,865 3,071 4,591 5,540 6,549 7,626 8,771 9,991 11,291 12,675 14,149 15,718 17,390 19,170 21,066 23,086 25,236 27,527 29,966 32,564 34,787 38,241 60 61 62 63 64 - - 4 143,714 143,714 143,714 143,714 143,714 636,571 687,948 742,665 800,938 863,748 41,377 44,717 48,273 52,061 62,643 age 25 to 34 and nothing from age 35 onward (10 years of saving in total). John saves nothing from age 25 to 34 and $10,000 f ncome. Who has more money at age 65? john % or 7.5%? jane 135779 john 674388 at 5 jane 151470 john 1043994 at 7.5 Balance 10,650 21,992 34,071 46,936 60,007 75,228 90,768 107,317 124,943 143,714 163,705 184,996 207,671 231,820 257,538 284,928 314,098 345,164 378250 413,486 451,013 490,979 533,543 578,330 626,571 5 677,948 732,665 790,938 852,999 926,391 6 25 to 34 and $10,000 from age 35 to 64 (30 years of saving it total). 7 8 4. Susan Doe is retiring next month. She has $400,000 in her 401(k) plan account. Assume that Susan can earn 5% annually and that she withdraws money at the beginning of each year. Using the tables outlined below, answer the following questions. a. How much can Susan withdraw every year so that the savings will last 25 years? b. Susan really wants to visit Europe. Assume that Susan spends $15,000 of her savings in the first month of retirement for a trip. How does this change your answer in a? c. Assume that at year 10, Susan's investments lose 10% of their value rather than earning 5%. Recalculate her withdrawal amount so that the money lasts the remainder of the 25 year period. Part A Age 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 Part B Balance 400,000 398,000 397,998 397,996 397,994 397,992 397,990 397,989 397,987 397,985 397,983 397,981 397,979 397,977 397,975 397,973 397,971 397,970 397,968 397,966 397,964 397,962 397,960 397,958 397,956 397,954 Withdrawal 2,000 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Investment Return 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% Investment Income - Age 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 Part C Balance - Withdrawal - 9 Investment Return 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% Investment Income - Age 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 Balance - Withdrawal - Investment Return 5% 5% 5% 5% 5% 5% 5% 5% 5% -10% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% Investment Income - 5. ABC Company sponsors a 401(k) plan. The deferral and match data for 2017 are listed below. a. Calculate the ADP and ACP for the HCE/NHCE groups. Does the plan pass the ADP and ACP discrimination tests? HCE ADP NHCE ADP ADP Test Pass HCE ACP NHCE ACP ACP Test Pass b. Assume ABC wants to adopt a traditional safe harbor design. What additional amount would ABC need to contribute to the plan under the basic matching contribution safe harbor and the nonelective contribution safe harbor? Extra Contribution under Basic Matching Formula Extra Contribution under Nonelective Contribution Employees A B C D E F G H J K HCE? Y N N Y N N N Y N N Compensation Deferral Match 500,000 18,000 8,100 75,000 7,500 2,250 75,000 4,500 2,250 150,000 18,000 4,500 60,000 6,000 1,800 60,000 5,000 1,800 60,000 4,000 1,800 150,000 12,000 4,500 35,000 ### 35,000 700 350 10