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Managing Case Study Report

Autor:   •  February 15, 2015  •  Case Study  •  2,217 Words (9 Pages)  •  978 Views

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MANAGING A 401(K) FUND

Case Study Report

Table of Contents

  • Case Background                                                         2
  • Key Case Findings                                                        2
  • Recommendations                                                                4
  • References                                                                        8
  • Exhibits                                                                        10

Case Background

This case is regarding a new employee, Emery Matthews, at a company, Hines, who is being offered an opportunity to invest earnings into a 401(k) retirement plan. Being a new employee, completing graduate school with only two years of work experience before this job, retirement was not the main focus on Emery’s mind. He was aware of the tax advantages in starting a 401(k) plan, how after a year work employment, Hines would match the contributions annually up to $2,000, but because of the ten (10) options Hines provided employees, he was unsure of which to select. These plans range from low to high risk, and quick to long-term gains. After reviewing all the options, it can be stated that the selection of the best option for Emery will come forth.

Key Case Findings:

  •  Emery Matthews is a new employee at Hines fresh out of college with a MBA/JD from Harvard University with only two years of work experience
  • It can be assumed that Emery has a substantial amount of student loans considering the cost of a two-year JD program from Harvard costs about $164,000 (Harvard Law School. 2015)
  • It can be assumed that Emery will be living within traveling distance to Hines central location of New York City. The following are statistical averages for New York City. (Numbeo. 2015)
  • Average monthly rent for an apartment (1 bedroom) outside of downtown is         $1,739.71
  • Basic utilities (Electricity, Heating, Water, Garbage) for 85m2 Apartment is $115.23
  • Internet (6 Mbps, Unlimited Data, Cable/ADSL)        monthly is $52.07
  • Monthly Subway Pass (Regular Price) is $112.00
  • Employees at Hines could contribute between one and fifteen percent of their salary to their 401(K) plans
  • After completion of the employee’s first year of employment, Hines will match up to $2,000
  • T. Rowe Price is the investment company in charge of managing the employees’ 401(K) plans
  • T. Rowe Price provides employees a “Risk Quiz” to identify the type of investor they are
  • Hines offers their employees ten (10) choices of mutual funds as well as an option for a common trust fund
  • T. Rowe Price provides employees of Hines descriptions of all the choices which include investment objectives, recent performance statistics, and specific information provided by an independent mutual fund, Morningstar
  • Morningstar information includes, more detailed description of the investment, the investment category, a portfolio analysis, the fund’s expenses, and an analysis of the investment’s performance and volatility

Recommendations

 There are many factors that Emery needs to keep in mind for choosing the right 401(K) plan as well as how much he will be investing monthly. For the purpose of this case repot, three different options will be provided for ideas as to how Emery should go about selecting his 401(K) plan. These plans will cover different risk levels, as well as options for monthly investment amounts. The reason for the different types of risk and monthly investment amounts is that the case fails to mention specific information regarding Emery’s current cost of living (bills, entertainment, etc.) as well as his starting salary and possible advancement. After researching starting pay for employees at Hines, it was found that they make around $50,000 annually. This figure will be taken into consideration when planning the investment options and monthly contributions to Emery’s 401(K) plan. Before recommendations are presented, it should be stated that the annual income of $50,000 equates to about $4,200 monthly. After deduction of the monthly expenses listed above, Emery will be left with $2,181 monthly. Of course, this figure excludes food expenses and entertainment.

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