Which retirement plan tells participants exactly how much money they will receive on a specific later date (usually the day they retire)?

Which retirement plan tells participants exactly how much money they will receive on a specific later date (usually the day they retire)?

• A. Deferred compensation plan
• B. Defined benefit plan
• C. Culture
• D. Danger premium

Answer: (B)

A defined benefit plan guarantees a fixed retirement benefit amount. The payout is determined by a formula that typically uses years of service and final average salary, so participants know exactly how much they will receive when they retire. The employer carries the investment and funding risk, and the benefit is usually paid as a lifetime annuity (often with options for survivor benefits). In contrast, a deferred compensation plan involves postponing a portion of earnings to a future date, but the eventual retirement payout isn’t guaranteed and depends on the plan terms and investment performance. The remaining options are not retirement plans at all.

A defined benefit plan guarantees a fixed retirement benefit amount. The payout is determined by a formula that typically uses years of service and final average salary, so participants know exactly how much they will receive when they retire. The employer carries the investment and funding risk, and the benefit is usually paid as a lifetime annuity (often with options for survivor benefits).

In contrast, a deferred compensation plan involves postponing a portion of earnings to a future date, but the eventual retirement payout isn’t guaranteed and depends on the plan terms and investment performance. The remaining options are not retirement plans at all.