Question

Which of the following is true about a defined contribution pension plan?

a)	the employer bears the investment risks of the pension plan;

b)	the employee bears the investment risks of the pension plan;

c)	the employer must ensure there are sufficient assets in the plan;

d)	the employee must ensure there are sufficient liabilities in the plan;

e)	the employer must report the funded status to the public of the plans of all employees.

Answer 1

B) the employee bears the investment risks of the pension plan;

Explanation:

Who actually bears the investment risk in a pension plan depends on the type of pension plan that is employed. In a broad sense, there are two benefit formulas that will calculate the pension benefits the plan member will receive. In the case of a defined-contribution pension plan, the plan member (i.e. the employee) bears all of the investment risk

In a defined contribution plan, investment risk and investment rewards are assumed by each individual/employee/retiree and not by the sponsor/employer. This risk could be substantial. Based on simulations from security returns over the twentieth century across 16 countries, there is considerable variation in retirement plan fund ratios across both time and country