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

A) The pension benefits to be received by the employee during retirement are defined in the plan.
B) Defined contribution plans are the most popular type of pension plan for large corporations.
C) Defined contribution plans do not define the required benefits that must be paid to retired employees.
D) Employers that use defined contribution plans are assuming more risks than employers that use defined benefit plans.

Question

Giselle Galang · Accepted Answer

Final Answer : C, Explanation :  In a defined contribution plan, the employer and/or employee contribute to the plan, but the benefits that the employee will receive during retirement are not predetermined. Instead, the amount of money that the employee receives depends on how much money was contributed to the plan and how successful the investments made with that money were. This is different from a defined benefit plan, in which the benefit that the employee will receive during retirement is defined in the plan. Therefore, statement C is true: defined contribution plans do not define the required benefits that must be paid to retired employees.

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