Final answer:
In a defined benefit plan, the existence of a B) deficit means that the present value of promised benefits is greater than the available assets, potentially causing financial difficulties in fulfilling retirement obligations.
Step-by-step explanation:
In a defined benefit plan, if the actuarial present value of promised retirement benefits exceeds the net assets available for benefits, there is a deficit.
This scenario indicates that the funds currently available are insufficient to meet the future obligations promised to retirees. It is a situation that can lead to serious financial implications for both the pension plan and its beneficiaries.
As the plan may not be able to pay out the promised benefits without additional funding or adjustments.Traditional defined benefit plans provide retirees with a predetermined monthly payment in retirement.
Which can lead to challenges especially when faced with inflation. To address such challenges, many employers have shifted towards defined contribution plans such as 401(k)s and 403(b)s.
which allow for contributions from both employer and employee that are invested in various financial vehicles, providing the potential for investments to grow at rates that could outpace inflation.