What type of plan places all investment risk with the employer while offering guaranteed benefits to retirees?

What type of plan places all investment risk with the employer while offering guaranteed benefits to retirees?

• A. Defined contribution plan
• B. Investment plan
• C. Defined benefit plan
• D. Hybrid retirement plan

Answer: (C)

A defined benefit plan is designed to provide guaranteed retirement benefits to employees, with the employer bearing the investment risk. In this structure, the employer promises a specific monthly benefit at retirement, which is typically calculated based on factors such as the employee's salary, years of service, and age at retirement. The employer is responsible for ensuring that there are sufficient funds to meet these future obligations, regardless of how well the investments perform. This stands in contrast to defined contribution plans, where employees typically have some control over their account and investment choices, and the risk of investment performance primarily falls on the employees. Defined benefit plans provide a predictable income stream for retirees, which can be a significant advantage in retirement planning. Employers who choose this type of plan must manage the investments and liabilities associated with it, which can present challenges, especially in fluctuating market conditions. On the other hand, investment plans and hybrid retirement plans do not focus solely on the employer bearing all the risk; they often involve shared responsibility or individual risk elements, making them distinct from defined benefit plans.

A defined benefit plan is designed to provide guaranteed retirement benefits to employees, with the employer bearing the investment risk. In this structure, the employer promises a specific monthly benefit at retirement, which is typically calculated based on factors such as the employee's salary, years of service, and age at retirement. The employer is responsible for ensuring that there are sufficient funds to meet these future obligations, regardless of how well the investments perform. This stands in contrast to defined contribution plans, where employees typically have some control over their account and investment choices, and the risk of investment performance primarily falls on the employees.

Defined benefit plans provide a predictable income stream for retirees, which can be a significant advantage in retirement planning. Employers who choose this type of plan must manage the investments and liabilities associated with it, which can present challenges, especially in fluctuating market conditions.

On the other hand, investment plans and hybrid retirement plans do not focus solely on the employer bearing all the risk; they often involve shared responsibility or individual risk elements, making them distinct from defined benefit plans.