The Southfork Steel Company is in Trouble.

Question: The Southfork Steel Company is in trouble. Since 1960 it has made guaranteed payments to retirees out of a pension fund paid into by current employees as a percentage of their salaries. The restructuring of the Southfork workforce, however, has meant that fewer employees are now needed to produce the same amount of work as in the days of the retired employees. Since current employees are unwilling to pay a larger percentage of their salaries into the pension system than their predecessors did, the pension fund will inevitably go bankrupt.

Which of the following, if true, suggests that the above reasoning is correct in its conclusion that the pension fund will inevitably go bankrupt?

1. Employees who retire today will, on average, live five years longer than those who retired in the 1960s.
2. The workers’ union has consistently vetoed any efforts on the part of management to cut the level of pension payments to retired employees.
3. Although Southfork Steel now produces almost twice as much steel as it did during the 1960s, overseas competition has driven the price of steel, adjusted for inflation, to less than one-third of its price in the 1960s, and there is no indication that prices will increase at any time in the future.
4. Consultants have advised Southfork management that it can improve efficiency at the plant by implementing further workforce restructuring that could decrease the total number of employees by approximately 10 percent.
5. Southfork employees in management do not take part in the general pension system, but instead pay into and collect from a separate system that guarantees higher payments.

Answer: C
Explanation:
This is a GMAT critical reasoning question. An assumption is an implied hypothesis. So we are looking for something that is implied in the argument. In case it is wrong or maybe disable the argument.

The statement states - The Southfork Steel Company is in trouble. Since 1960 it has made guaranteed payments to retirees out of a pension fund paid into by current employees as a percentage of their salaries. The restructuring of the Southfork workforce, however, has meant that fewer employees are now needed to produce the same amount of work as in the days of the retired employees. Since current employees are unwilling to pay a larger percentage of their salaries into the pension system than their predecessors did, the pension fund will inevitably go bankrupt.

Which of the following, if true, suggests that the above reasoning is correct in its conclusion that the pension fund will inevitably go bankrupt?

1. This option does not provide any useful information regarding the funds.
2. This could contribute to the problem, but they do not address the fundamental economic problem well.
3. This further gives the assertion that there are no other means for the funds. Hence the reasoning is further strengthened.
4. This option is not at all relevant and further weakens the argument.
5. This option is concerned about a particular section of employees, hence not relevant.

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