A defined contribution plan establishes what for the employer?

A defined contribution plan establishes what for the employer?

• A. The retirement income level for employees
• B. The basis on which the employer will contribute to the pension fund
• C. The investment options available to employees
• D. The maximum amount an employee can invest each year

Answer: (B)

A defined contribution plan establishes the basis on which the employer will contribute to the pension fund. This type of retirement plan specifies the amount or percentage of an employee's salary that the employer will contribute, typically as a set amount rather than guaranteeing a specific retirement income level. In a defined contribution plan, the employer's obligation is limited to making contributions as agreed upon in the plan. Consequently, the actual retirement income that employees will receive depends on various factors, including the performance of investments within the plan and the total contributions made over the years. This makes it clear that the employer's responsibility relates directly to their contribution amount rather than defining the retirement income or investment options provided to employees.

A defined contribution plan establishes the basis on which the employer will contribute to the pension fund. This type of retirement plan specifies the amount or percentage of an employee's salary that the employer will contribute, typically as a set amount rather than guaranteeing a specific retirement income level.

In a defined contribution plan, the employer's obligation is limited to making contributions as agreed upon in the plan. Consequently, the actual retirement income that employees will receive depends on various factors, including the performance of investments within the plan and the total contributions made over the years. This makes it clear that the employer's responsibility relates directly to their contribution amount rather than defining the retirement income or investment options provided to employees.