Defined benefit pension plans a stipulate contributions will be made to the employer’s retirement fund b Bestows the risk of low portfolio returns to the employee c Bestows the risk of low portfolio returns to the employer d Will benefit employers if retirees live longer
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Defined benefit pension plans
a stipulate contributions will be made to the employer’s retirement fund
b Bestows the risk of low portfolio returns to the employee
c Bestows the risk of low portfolio returns to the employer
d Will benefit employers if retirees live longer
Defined benefit pension plans are employer-funded retirement plans that guarantee a predetermined amount of money to employees upon retirement. These plans require employers to make fixed contributions to a retirement fund each year, which is typically based on a formula that considers factors such as the employee's salary and years of service. The benefit is guaranteed regardless of how the investments in the retirement fund perform. As such, the responsibility of any low portfolio returns rests on the employer, not the employee. If retirees live longer, the employer may benefit from the continued contributions to the retirement fund. However, defined benefit plans are more complex and costly to establish and maintain than other types of retirement plans, and if the minimum contribution requirement is not satisfied, an excise tax may be applied.
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