PFIN 3rd Edition by Lawrence Gitman,Michael Joehnk,Randall Billingsley

Exercise 2

Kristin Caldwell has just graduated from college and is considering job offers from two companies. Although the salary and insurance benefits are similar, the retirement programs are not. One firm offers a 401(k) plan that matches employee contributions with 25 cents for every dollar contributed by the employee, up to a $10,000 limit. The other has a contributory plan that allows employees to contribute up to 10% of their annual salary through payroll deduction and matches it dollar for dollar; this plan vests fully after five years. Because Kristin is unfamiliar with these plans, she turns to you for help. Explain the features of each plan so that she can make an informed decision.