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What is the main difference between a defined-benefit plan and a defined-contribution plan?

A. A defined-benefit plan is taxed at 5 percent, and a defined-contribution plan is taxed at 10 percent.
B. A defined-benefit plan guarantees a specific retirement benefit, and a defined-contribution plan does not.
C. A defined-benefit plan guarantees income, and a defined-contribution plan does not.
D. A defined-benefit plan is totally funded by the employer, and a defined-contribution plan is funded by the employee.
E. A defined-benefit plan earns interest, and a defined-contribution plan doesn't.

Sagot :

GinnyAnsweridn

Final answer:

A defined-benefit plan promises a specific retirement benefit, while a defined-contribution plan does not guarantee a specific benefit and places the investment risk on the employee.


Explanation:

A defined-benefit plan guarantees a specific retirement benefit, typically based on salary and years of service, offering a predictable income stream post-retirement. On the other hand, a defined-contribution plan does not guarantee a specific benefit; instead, the retirement benefit is based on the contributions made and the investment performance over time.

In a defined-benefit plan, the employer bears the investment risk and is responsible for funding the promised benefits, while in a defined-contribution plan, the employee bears the investment risk, as the retirement benefit is dependent on the individual's contributions and investment choices.


Learn more about Retirement plans here:

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