In retirement plans, which statement best describes a defined benefit plan?

In retirement plans, which statement best describes a defined benefit plan?

• A. A plan that guarantees a lifetime payout to retirees
• B. A plan funded solely by employee contributions
• C. A plan that provides variable benefits based on market returns
• D. A defined benefit plan provides a predetermined payout at retirement

Answer: (D)

The defining idea is that a defined benefit plan promises a specific retirement benefit based on a formula, not on contributions made or how investments perform. The payout is fixed or determined by factors like salary and years of service, so the retiree receives a predictable benefit, often for life, with the employer bearing the investment risk and funding the promised amount. This is different from defined contribution plans, where future retirement income depends on how much is contributed and how investments perform. So the best description is that a defined benefit plan provides a predetermined payout at retirement.

The defining idea is that a defined benefit plan promises a specific retirement benefit based on a formula, not on contributions made or how investments perform. The payout is fixed or determined by factors like salary and years of service, so the retiree receives a predictable benefit, often for life, with the employer bearing the investment risk and funding the promised amount. This is different from defined contribution plans, where future retirement income depends on how much is contributed and how investments perform. So the best description is that a defined benefit plan provides a predetermined payout at retirement.