Final answer:
Both the Employee Stock Ownership Pension plan (ESOP) and the Profit Sharing Retirement plans carry risks due to their dependence on the financial performance of the company, with benefits tied to the company's stock value or profits made. These contrast with safer, though now rarer, defined benefit pensions, which offer guaranteed payouts.
Step-by-step explanation:
The Employee Stock Ownership Pension plan (ESOP) and the Profit Sharing Retirement plans are considered fairly risky pension plans primarily because the benefits depend on the performance of the company's stock or profits. Unlike traditional pension plans which offer a defined benefit upon retirement, these plans are subject to the fluctuations of the market and the financial health of the employer. In the case of ESOPs, for example, if the company's stock performs poorly, the retirement savings may be significantly reduced. Similarly, Profit Sharing Retirement plans rely on the company's profits, which can vary from year to year.
While traditional pensions are becoming rarer, shifting more to defined contribution plans like 401(k)s and 403(b)s, these still involve investment risk. However, they are tax-deferred, portable, and offer a range of investment options, potentially mitigating some risks associated with ESOPs and profit-sharing plans. Additionally, the Pension Benefit Guarantee Corporation (PBGC) provides a safety net for some traditional pension plans, although it does not cover defined contribution plans.