Question

Which of the following statements is true regarding a defined benefit pension plan?

Group of answer choices

A. Defined benefit plans are relatively easy to handle from an accounting perspective.

B. Employers that use defined benefit plans are assuming more risks than employers that use defined contribution plans.

C. Defined benefit plans require an employer to contribute a defined sum each period to a pension fund.

D. A defined benefit plan requires the employer to fund the plan each year for an amount equal to the pension expense.

Answer 1

The correct option is B. i.e Employers that use defined benefit plans are assuming more risks than employers that use defined contribution plans.

Defined benefit pension plans i.e pensions, means providing a guaranteed monthly income to employees when the employee retire and the burden of funding and choosing investments is on the employer.

Defined contribution plans are primarily funded by employees who pick investments and, as a result, end up taking on investment risk.

Thus, Employers that use defined benefit plans are assuming more risks than employers that use defined contribution plans.