Final answer:
True, the net pension liability may change due to differences between the expected and actual returns on pension plan investments. Employers increasingly favor defined contribution plans, like 401(k)s, to avoid these issues. Defined benefit pension plans face risks from varying investment returns, affecting the value of retirees' future benefits.
Step-by-step explanation:
True, changes in the net pension liability may occur due to the differences between the projected and actual returns on pension plan investments. Defined benefits retirement plans, known as pensions, promise retirees a fixed amount upon retirement, which can lead to complications in cases where the return on investments does not align with projections.
However, many employers are now offering defined contribution plans, like 401(k)s and 403(b)s, which allow employees to invest funds that can ideally generate real rates of return, mitigating the effects of inflation that traditional pension plan retirees may face. As rates of return on pensions' investments can fluctuate, they can deeply affect the savings required today to meet future obligations, as well as affect the value and sufficiency of the benefits paid out to retirees over time.
In contrast, with defined contribution plans, the investment risk is largely transferred to the employee, who has the flexibility to manage their own retirement savings and contributions.