What term describes a retirement plan in which an employee defers part of her pay into the plan, the money is invested, and the employee bears investment risk?

What term describes a retirement plan in which an employee defers part of her pay into the plan, the money is invested, and the employee bears investment risk?

• A. Defined Contribution Plan
• B. Defined Retirement Plan
• C. Delphi Technique
• D. Design Thinking

Answer: (A)

This describes how a retirement plan handles contributions and investment risk. In a defined contribution plan, an employee defers part of her pay into the plan, the funds are invested, and the employee bears the investment risk—the eventual retirement benefit depends on how the investments perform. The employer may contribute as well, but there is no guaranteed payout amount. In contrast, a defined benefit plan promises a specific retirement benefit and places the investment risk on the employer. The other terms listed aren’t retirement plan types: one is a forecasting method, and the other is a problem-solving approach. A common example of the described setup is a 401(k) plan.

This describes how a retirement plan handles contributions and investment risk. In a defined contribution plan, an employee defers part of her pay into the plan, the funds are invested, and the employee bears the investment risk—the eventual retirement benefit depends on how the investments perform. The employer may contribute as well, but there is no guaranteed payout amount.

In contrast, a defined benefit plan promises a specific retirement benefit and places the investment risk on the employer. The other terms listed aren’t retirement plan types: one is a forecasting method, and the other is a problem-solving approach.

A common example of the described setup is a 401(k) plan.