Question

For which of the following pension plans is the amount of the benefit simply on the amount the pension fund has accumulated at some future point?

1) defined benefit pension
2) defined contribution pension
3) both of the above
4) none of the above

Answer 1

The pension plan where benefits depend on the accumulated fund is the defined contribution pension, which includes plans like 401(k)s and 403(b)s, featuring employer and employee contributions as well as investment options.

Step-by-step explanation:

The type of pension plan in which the amount of the benefit is based solely on the amount the pension fund has accumulated at some future point is the defined contribution pension. The pension plan where benefits depend on the accumulated fund is the defined contribution pension, which includes plans like 401(k)s and 403(b)s, featuring employer and employee contributions as well as investment options.

Under these plans, such as 401(k)s and 403(b)s, both the employer and employee contribute a fixed amount on a regular basis, which the worker then invests in various vehicles. These investments are tax-deferred and portable, providing flexibility and potential protection against inflation.