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My pension plan will pay me a yearly retirement amount equal to 2% of my highest annual salary for each year of service. I must have ________.
A) a defined benefit plan
B) a defined contribution plan
C) an endowment fund
D) a variable annuity
Defined Benefit Plan
A type of pension plan where the employer promises a specified pension payment upon retirement, based on an employee's earnings history, tenure of service, and age.
Defined Contribution Plan
A type of retirement plan where the amount contributed to the plan is specified, but the benefit received at retirement depends on the plan's investment performance.
Endowment Fund
A fund established by a foundation, institution, or individual, where the principal amount is kept intact while the investment income is available for use.
- Understand the differences between defined benefit and defined contribution pension plans, including the risk-bearing party.
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Learning Objectives
- Understand the differences between defined benefit and defined contribution pension plans, including the risk-bearing party.
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