Final answer:
The correct statement is that defined benefit pension plans are costlier to administer than defined contribution plans and outline the exact benefit to be received. The employer bears the investment risk, not the employee. These plans are being phased out in favor of defined contribution plans which offer portability and can shield retirees from inflation.
Step-by-step explanation:
Among the statements regarding the characteristics of a defined benefit pension plan, the correct one is that the plan is more costly to administer than defined contribution plans, and it specifies the final benefit an employee receives. The law stipulates that the maximum allowable benefit payable from the plan is either 100% of the average of the highest three years of compensation for the participant or a specified annual limit, which in 2021 was $230,000. Unlike defined contribution plans like 401(k)s and 403(b)s, in a defined benefit plan, the employer bears the investment performance risk, not the employee.
Defined benefit plans are increasingly rare and have been largely replaced by defined contribution plans, which offer advantages such as portability and the potential to keep up with inflation if the investments perform well. Conversely, with defined benefit plans, retirees face the challenge of their fixed pensions losing purchasing power due to inflation over time.