In a defined-benefit plan, a formula is used that requires that the benefit of gain or the risk of loss from the assets contributed to the pension plan be borne by the employee. requires that pension expense and the cash funding amount be the same. defines the benefits that the employee will receive at the time of retirement. defines the contribution the employer is to make; no promise is made concerning the ultimate benefits to be paid out to the employees.

Question

Mariah Hinton

Business

31 December, 08:22

In a defined-benefit plan, a formula is used that requires that the benefit of gain or the risk of loss from the assets contributed to the pension plan be borne by the employee. requires that pension expense and the cash funding amount be the same. defines the benefits that the employee will receive at the time of retirement. defines the contribution the employer is to make; no promise is made concerning the ultimate benefits to be paid out to the employees.

+1

Answers (1)

Know the Answer?

Nola Osborne · Answer 1

The correct answer is: defines the benefits that the employee will receive at the time of retirement.

Explanation:

The defined benefit plan is a pension plan in which the company defines a remuneration or benefit that the employee will receive once he has retired. This benefit is based on various criteria such as average salary, length of service with the company, etc.

The company assumes all the investment risk, unlike in the defined contribution plans. The company establishes a liability equal to the present value of the payments that must be made in the future to the employee. This liability is compensated by the company with an asset investment plan where it contributes as the employee gains benefits.

As it assumes the investment risk, the company has to worry about achieving the established objectives. For this you have to carry out an investment strategy and adapt to it fervently. A defined benefit plan where assets are greater than liabilities is said to be overcapitalized. Whereas if the assets are less than the liabilities, the plan is undercapitalized.