The key difference between defined benefit and defined contributions post-employment plans is that:

A) the employee bears the risk in a defined benefit plan, whereas the employer bears the risk in a defined contribution plan.
B) the employer bears the risk in a defined benefit plan, whereas the employee bears the risk in a defined contribution plan.
C) the fund bears the risk in a defined benefit plan, whereas the employee bears the risk in a defined contribution plan.
D) the employer bears the risk in a defined benefit plan, whereas the fund bears the risk in a defined contribution plan.

Question

Kiley Lewandowski · Accepted Answer

Final Answer : B, Explanation :  In a defined benefit plan, the employer guarantees a specific retirement benefit based on the employee's years of service and salary, and bears the investment risk to ensure that sufficient funds are available to pay the promised benefit. In contrast, in a defined contribution plan, the employee bears the investment risk by contributing a certain percentage of their salary to an individual account, with the employer often matching a portion of the contribution. The ultimate retirement benefit is dependent on the investment performance of the individual account, rather than the employer's promise.

Definitions

Learning Objectives

Learning Objectives

Related questions