Which of the following statements is true regarding a defined benefit pension plan?

A) Defined benefit plans are relatively easy to handle from an accounting perspective.
B) Employers that use defined benefit plans are assuming more risks than employers that use defined contribution plans.
C) Defined benefit plans require an employer to contribute a defined sum each period to a pension fund.
D) A defined benefit plan requires the employer to fund the plan each year for an amount equal to the pension expense.

Question

Laurie Jones · Accepted Answer

Final Answer : B, Explanation :  Defined benefit plans guarantee a specific benefit to employees upon retirement, whereas defined contribution plans only guarantee a specific contribution amount from the employer. Because the employer is guaranteeing a specific benefit in a defined benefit plan, they assume more risks than with a defined contribution plan. In addition, employers are responsible for contributing enough money to the pension fund to cover the promised benefit, rather than a defined sum each period. The accounting for defined benefit plans can be complex and challenging.

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