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Retirement fund

Expert replies
by ashish2104 » Sat Jul 10, 2010 4:24 am
A company gives each employee the opportunity to invest from each paycheck upto 8 percent of his or her salary in a personal,interest accruing retirement fund. The company automatically contributes equivalent of 2% of an employeee's paycheck to such a fund, regardless of whether or not the employee invests anything, and will also contribute an amount equivalent to any investment the employee elects to make upto 3% of the employee's paycheck.

If the statements above are true, which of the following are also true?
A) The company wishes to deter its employees from investing more than 3% of their paychecks in the retirement fund.
B) If the employee elects to invest 4% of his paycheck in the retirement fund, the total value of each investment, including company's contribution, will be equivalent to 9% of his paycheck.
C)An employee gains nothing by investing more than 3% of his paycheck in the retirement fund
D)If the total value of each investment in certain employee's retirement fund,including company contributions, is the equivalent of 4% of his paycheck, then he has elected to invest 2% of his paycheck.
E)the smaller the amount of his own paycheck an employee invests in the retirement fund, the greater the amount that the company will contribute to the fund.

[spoiler]OA:B[/spoiler]

Please explain your reasoning
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Source: — Critical Reasoning |

by grockit_andrea » Sat Jul 10, 2010 5:14 am
A. Incorrect. The company gives the employees the opportunity to invest up to 8 percent, and while it matches only up to 3%, it doesn't do anything to discourage investments greater than 3%.
B. Correct. The company automatically deposits an amount equal to 2%, and the employee deposits 4%. Then the company matches 3% of the employee's 4% deposit. 2% + 4% + 3% = 9%.
C. Incorrect. The retirement fund accrues interest. Therefore, the more the employee invests, the more he or she gains in interest. Saying that the employee gains "nothing" by investing more is inaccurate.
D. Incorrect. The company automatically invests an amount equal to 2% of the employee's paycheck. The other 2% means that the employee invested 1% and the company matched with another 1%.
E. Incorrect. The company provides a matching contribution up to 3%, so the company's contribution increases as the employee's contribution increases.
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