7.Each of the following is a characteristic of a defined benefit retirement plan

Question

7.Each of the following is a characteristic of a defined benefit retirement plan EXCEPT:

(a) The plan specifies the benefit an employee receives at retirement.

(b) The law specifies the maximum allowable benefitpayable from the plan is equal to the lesser of 100% of salary or $205,000 (2013) per year currently.

(c) The plan has less predictable costs as compared to defined contribution plans.

(d) The plan assigns the risk of pre-retirement inflation, investment performance, and adequacy of retirement income to the employee.

Explanation / Answer

The defined benefit retirement plan specifies the benefit an employee receives at retirement. As per the law the maximum allowable payable benefit to the employee from the plan per year currently (2013) is the lesser of $205,000 or 100% of salary. The employer bear the risk of pre-retirement investment and inflation risk which makes the plan cost less predictable and more costly compared to the defined contribution plan.

Therefore, the correct answer is option d.

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