What type of pension plan guarantees a specified level of retirement income?

What type of pension plan guarantees a specified level of retirement income?

• A. Defined contribution plan
• B. Defined benefit plan
• C. 403b plan
• D. Individual Retirement Account

Answer: (B)

A defined benefit plan guarantees a specified level of retirement income to participants, typically based on a formula that considers factors such as years of service and salary history. This means that employees can expect to receive a predetermined amount upon retirement, providing a stable and predictable income stream. The employer is responsible for funding the plan and managing the investment risks associated with it. This type of pension plan is designed to offer more security to retirees, as they can be assured of the financial support they will receive during their retirement years. In contrast, a defined contribution plan, such as a 401(k), is dependent on the contributions made by the employee and potentially the employer, with retirement income fluctuating based on investment performance. A 403(b) plan is a type of defined contribution plan meant for specific non-profit organizations and educational institutions. An Individual Retirement Account (IRA) is also a type of defined contribution plan but is typically set up by an individual to save for retirement independently. These alternatives do not guarantee a fixed retirement income and carry more uncertainty regarding the eventual amount retirees will receive.

A defined benefit plan guarantees a specified level of retirement income to participants, typically based on a formula that considers factors such as years of service and salary history. This means that employees can expect to receive a predetermined amount upon retirement, providing a stable and predictable income stream. The employer is responsible for funding the plan and managing the investment risks associated with it. This type of pension plan is designed to offer more security to retirees, as they can be assured of the financial support they will receive during their retirement years.

In contrast, a defined contribution plan, such as a 401(k), is dependent on the contributions made by the employee and potentially the employer, with retirement income fluctuating based on investment performance. A 403(b) plan is a type of defined contribution plan meant for specific non-profit organizations and educational institutions. An Individual Retirement Account (IRA) is also a type of defined contribution plan but is typically set up by an individual to save for retirement independently. These alternatives do not guarantee a fixed retirement income and carry more uncertainty regarding the eventual amount retirees will receive.