Question 14Under defined contribution plan:Answer :The employer’s contribution is unknown. The benefits payable to the retiring employees is unknown. The amount of benefits to be received by the retiring employees depends on the amounts originally contributed plus income from investments accumulated in the fund. The benefits of gains or risks of losses invested under the fund are borne by the employees.
Question
Question 14Under defined contribution plan:Answer :The employer’s contribution is unknown. The benefits payable to the retiring employees is unknown. The amount of benefits to be received by the retiring employees depends on the amounts originally contributed plus income from investments accumulated in the fund. The benefits of gains or risks of losses invested under the fund are borne by the employees.
Solution
Under a defined contribution plan:
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The employer's contribution is fixed and known. It is usually a percentage of the employee's salary and is invested on behalf of the employee.
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The benefits payable to the retiring employees are not guaranteed or known in advance. This is because the final amount depends on the performance of the investments made with the contributions.
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The amount of benefits to be received by the retiring employees depends on the amounts originally contributed plus income from investments accumulated in the fund. This means that if the investments perform well, the employee will receive a higher benefit. Conversely, if the investments perform poorly, the employee will receive a lower benefit.
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The benefits of gains or risks of losses invested under the fund are borne by the employees. This means that the employees are the ones who benefit if the investments perform well, but they also bear the risk if the investments perform poorly. This is different from a defined benefit plan, where the employer bears the investment risk.
Similar Questions
Question 12Under defined benefit plan:Answer :The employees’ benefits are unknown. Actuarial valuation is unnecessary in accounting for the plan. The plan asset and retirement benefit obligation belong to the employer. The employer is not legally bound by the ultimate amount to be payable to the retiring employees.
Which of the following is true of defined contribution plan?Question 4Answera.It provides an explicit benefit which is easily communicated.b.It is more favourable to long-service employees.c.It does not require managing of surplus or deficit in pension fund.d.It makes the employer accountable for the risks associated with changes in inflation and interest rates.e.It does not make employer costs known.
Defined benefits formula to calculate the lump sum that an employee receives when he /she retires incorporates:[You can select more than one answer]A.Returns of investmentsB.Number of years of contributions to that fund.C.Employer's Contributions to the defined benefit schemeD.Salary in the last years of employment
Contributions to a defined contribution plan are invested on the employee's behalf.TrueFalse
Which of the following employee benefit plans is defined by the following statement: “post-employment benefit plans under which an entity pays fixed contributions into a separate entity and will have no obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods”?
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