Question

Which of the following characteristics describe defined contribution plans? (Check all that apply.)

a. The employee bears the investment risk and funding responsibility.

b. Employers choose how the amounts in the retirement account are invested.

c. The plan specifies the amount of the distribution at retirement rather than the up-front payment the employer will make to the employee's plan.

d. Employers must maintain separate accounts for each employee participating in the plan.

e. Employees may contribute more to the plan than the employer contributes.

Answer 1

Defined contribution plans have characteristics including (a) the employee bearing investment risk and funding responsibility, (b) employers selecting investment options, (c) specifying distribution amount at retirement, (d)separate accounts for each employee, and (e) employee contributions beyond employer contributions.

Step-by-step explanation:

Defined contribution plans have certain characteristics that can be identified. The correct characteristics that describe defined contribution plans are:

1. The employee bears the investment risk and funding responsibility. In defined contribution plans, the employee is responsible for investing the funds in their retirement account, and they bear the risk of the investments.
   
   
2. Employers choose how the amounts in the retirement account are invested. Employers have the authority to determine the investment options available to employees in the plan.
   
   
3. The plan specifies the amount of the distribution at retirement rather than the up-front payment the employer will make to the employee's plan. A defined contribution plan determines the amount to be distributed at retirement, which is based on the performance of the investments made.
   
   
4. Employers must maintain separate accounts for each employee participating in the plan. Each employee has a separate account in a defined contribution plan to track their contributions and investments.
   
   
5. Employees may contribute more to the plan than the employer contributes. In some defined contribution plans, employees have the option to contribute additional funds beyond the employer's contribution.