Question

1. Explain the primary advantages of a defined contribution plan.

Answer 1

(a) employees have ownership of investment style and maximum flexibility terms of cost commitment and opportunities to increase productivity
(b) through employer securities as plan investment, greater association od employee with company & its goals can be achieved
(c) in case of relatively young employee covered, defined contribution plan leads to greater value of employee relations.
(d) Employees' ability to make contributions on before-tax basis under Section 401(k)
(e) No need to pay premiums to PBGC and hence lower administrative costs