Reece is comparing retirement plans with prospective employers. ABC, Inc., offering a salary of

$42,900,

will match 75 percent of his contributions up to 10 percent of his salary, his maximum contribution. XYZ Company will match 100 percent of his contribution up to 6 percent of salary, but he can contribute up to 15 percent of his income. XYZ Company is offering a

$39,900

salary. If Reece assumes that he will contribute the maximum amount allowed and keep these first-year retirement funds invested for

25

years with a return of

8

percent, how much would each account be worth? How can he use this information when choosing an employer?Click on the table icon to view the FVIF table

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If Reece assumes that he will contribute the maximum amount allowed and keep these first-year retirement funds invested for

25

years with a return of

8

percent, the ABC account will be worth

$enter your response here.

(Round to the nearest cent.)If Reece assumes that he will contribute the maximum amount allowed and keep these first-year retirement funds invested for

25

years with a return of

8

percent, the XYZ account will be worth

$enter your response here.

(Round to the nearest cent.)

How can he use this information when choosing an employer? (Select the best answer below.)

A.The two retirement plans offered by the company would result in a future value difference for the first year of employment of

$5,968.44.

However, Reece must consider that it is his contribution that is making the difference. Although he might come out ahead at retirement (this would depend on future raises, employer contribution proportions, etc.) the ABC offer is more lucrative today. Not only are they offering a salary that is

$3,000.00

more, but they contribute more per year, in today's dollars, to his retirement plan. Making a decision based on his first year salary alone is an incomplete, at best, method of selecting an employer.

B.The two retirement plans offered by the company would result in a future value difference for the first year of employment of

$5,968.44.

Since Reece's retirement account is expected to be larger under the XYZ account, this is a good reason to choose XYZ as an employer. Reece could expect that every year the value of his retirement plan under XYZ would get larger and larger, making XYZ a better choice.