andytrader

Which of the following statements regarding defined benefit and defined contribution pension plans is least accurate?

A) The liability to a defined contribution plan sponsor is the current plan contribution requirement.

B) The risk and return of defined benefit pension fund investments is borne by the plan participants.

C) Promised benefits under a defined benefit plan are paid to plan participants at retirement and represent a liability to the plan sponsor.

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As long as a pension sponsor is solvent, the performance of the fund’s investments has no impact on the benefits promised to the employees covered by the plan. The risk and return characteristics of the assets of a defined benefit pension fund are borne by the plan sponsor.

andytrader

From the perspective of the employer, which of the following statements is most accurate? A defined:

A) contribution plan can be underfunded; a defined benefit plan is more risky.

B) benefit plan can be underfunded; a defined contribution plan is less risky.

C) benefit plan can be underfunded; a defined contribution plan is more risky.

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A defined benefit plan is underfunded when the present value of the liabilities exceeds the present value of the plan’s assets. A defined contribution plan cannot become underfunded, and is, therefore, considered to be less risky from the standpoint of the employer.

andytrader

Which of the following statements about participant-directed defined contribution plans is CORRECT?

A) The plan must offer a sufficient number of investment vehicles for suitable portfolio construction.

B) Defined contribution plans are not subject to ERISA.

C) Defined contribution plans are structured similar to foundations.

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For participant-directed defined contribution plans, each employee has his/her own account; hence, the structure is not similar to foundations. Defined contribution plans are subject to ERISA.