Which statement about defined contribution plans is correct?

Which statement about defined contribution plans is correct?

• A. It is funded by employer contributions only
• B. It guarantees a fixed benefit regardless of investment results
• C. It depends on contributions and investment performance
• D. It provides a predetermined payout at retirement

Answer: (C)

Defined contribution plans place the investment result at the center of the retirement benefit. Contributions come from the employee and often include an employer match, and they are invested into individual accounts. The amount you ultimately receive at retirement depends on how much was contributed over time and how those investments performed, so there is no guaranteed fixed payout. The plan’s value grows or shrinks with investment returns, fees, and withdrawal decisions you make in retirement. This differs from defined benefit plans, which promise a specific benefit regardless of investment results.

Defined contribution plans place the investment result at the center of the retirement benefit. Contributions come from the employee and often include an employer match, and they are invested into individual accounts. The amount you ultimately receive at retirement depends on how much was contributed over time and how those investments performed, so there is no guaranteed fixed payout. The plan’s value grows or shrinks with investment returns, fees, and withdrawal decisions you make in retirement. This differs from defined benefit plans, which promise a specific benefit regardless of investment results.