Question

What type of retirement plan typically requires a significant amount of work to track employee benefits and to compute required contributions; is structured where the employer bears the investment risk; and combines the funds, rather than having each employee with a separate account?

a) Defined Contribution Plan
b) 401(k) Plan
c) Defined Benefit Plan
d) Roth IRA

Answer 1

The retirement plan described is a Defined Benefit Plan, which requires extensive tracking and places investment risk on the employer, with pooled funds for all employees.

Step-by-step explanation:

The type of retirement plan that typically requires a significant amount of work to track employee benefits, computes required contributions, is structured where the employer bears the investment risk, and combines the funds into a collective pool rather than individual accounts is a Defined Benefit Plan. In contrast, Defined Contribution Plans, such as 401(k)s and 403(b)s, involve the employer contributing a fixed amount to an employee's retirement account on a regular basis, with the employee often contributing as well. These funds are then invested by the employee in a range of investment vehicles. Such plans are tax deferred and portable, meaning they can be taken to a new employer, and they offer protection from inflation costs due to the real rates of return on the investments.