Question

Which of the following is a feature of a hybrid pension plan?

a) It enables employees to contribute higher amounts for a higher pension.
b) It blends the features of a defined-benefit plan and a defined-contribution
plan.
c) It enables employees to opt out temporarily and rejoin later.
d) It gives employees more flexibility as to when they receive the benefit

Answer 1

A hybrid pension plan combines elements of both defined-benefit and defined-contribution plans, offering the security of a fixed pension along with the growth potential of investment returns.

Step-by-step explanation:

The feature of a hybrid pension plan is that it blends the features of a defined-benefit plan and a defined-contribution plan. Unlike traditional pension plans that are becoming rare, hybrid plans provide a composite of both models. In a defined-benefit plan, retirees receive a fixed income, which can lose buying power due to inflation over time. On the other hand, defined-contribution plans like 401(k)s provide a retirement account where both employer and employee make contributions, and the funds are invested in various vehicles. The hybrid pension plan combines elements of both, offering the security of a defined benefit and the growth potential of a defined contribution from the investment returns, which could mitigate inflation impact on retirees.