Final answer:
Unfunded actuarial liabilities exist for defined benefit plans only. Defined benefit plans guarantee specific retirement benefits, which can result in liabilities if the funds are insufficient, whereas defined contribution plans like 401(k)s depend on investment performance and do not involve such liabilities for employers.
Step-by-step explanation:
Unfunded actuarial liabilities may exist for defined benefit plans only. Defined benefit plans promise to pay a specific benefit to retirees, often based on salary and years of service. These plans pose a risk of unfunded liabilities if the employer has not set aside enough funds to meet the promised benefits. Conversely, defined contribution plans, such as 401(k)s and 403(b)s, involve the employer contributing a fixed amount to the worker's retirement account on a regular basis. The ultimate benefit received by the employee depends on the performance of the investments, not on a predefined benefit, which eliminates the possibility of unfunded actuarial liabilities on the part of the employer.
Employers offering pensions are required by law to contribute to the Pension Benefit Guarantee Corporation, which helps ensure that workers will receive at least some pension benefits even if a company cannot fulfill its pension promises due to bankruptcy. In contrast, defined contribution plans are tax deferred, portable, and the retiree benefits are directly linked to the generated returns, thus not directly affected by the employer's financial capacity to fund a retirement plan.