Question

In a defined contribution plan, a formula is used that:__. select answer from the options below

a. ensures that employers are not at risk to make sure funds are available at retirement.
b. requires an employer to contribute a sufficient sum each period based on the future benefit.
c. ensures that defined benefit expense and the cash funding amount will be different.
d. defines the benefits that the employee will receive at retirement.

Answer 1

The correct answer is 'a. ensures that employers are not at risk to make sure funds are available at retirement.' because in defined contribution plans, the employer's responsibility is to contribute a fixed amount periodically, not to guarantee a specific retirement benefit.

Step-by-step explanation:

In a defined contribution plan, a formula is used that ensures employers contribute a fixed amount to an employee's retirement account on a regular basis. This fixed contribution is typically made every paycheck and is invested by the employee in a variety of investment vehicles. Unlike defined benefit plans, which define the benefits that the employee will receive at retirement, defined contribution plans specify the employer's contribution amount and leave investment management to the employees. Therefore, the correct answer to the student's question is: 'a. ensures that employers are not at risk to make sure funds are available at retirement.' These plans offer tax deferral and portability, which are appealing features for many workers.