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Basic Question 1 of 6
Select the correct statement(s).
II. The employer is the beneficiary of a defined contribution trust.
III. The employer is the beneficiary of a defined benefit trust.
IV. Employees are the beneficiaries of a defined benefit trust.
I. Employees are the beneficiaries of a defined contribution trust.
II. The employer is the beneficiary of a defined contribution trust.
III. The employer is the beneficiary of a defined benefit trust.
IV. Employees are the beneficiaries of a defined benefit trust.
User Contributed Comments 15
| User | Comment |
|---|---|
| yanpingz | I thought it should be II and IV. Anybody have an explanation why it's I and III? |
| nick | For a defined contribution trust, the employer does not care the result of the investment, so the employees are the beneficiaries because what they get is what's in the trust. For a defined benefit trust, the employees don't care the result. They get what's specified in the contract. The employer, however, gets what's in the trust. |
| nike | "beneficiary" does not mean "benefits". laurenduvall is right. |
| ostrich | I think what is important here, is to remember the details! |
| Masterkang | Why?? It's always the employees who benefit from pension plans, whether it is a defined contribution or a defined benefit scheme should not matter. Therefore, the answer should be I and IV. |
| noonah | The beneficiary of a plan assumes the risk of that plan, and hence I and III are correct. |
| thekapila | You are right noonah..as for defined contribution employee manages and for defined benefit employer manages plan assets. |
| creativemny | III is correct as the employer is responsible for any shortfall of the plan. The employees will receive their benefits unless the employer defaults. |
| quantwannabe | creativemny, you are right. III is correct |
| vi2009 | Good question and good to realize now! Yes, creativemny and noonah are right. |
| cslau83 | If employer are the beneficiaries then should be Non-Current ASSETS. Anyway, there is a section in another volume which states that investment manager is responsible to the ultimate benefeciaries of pension funds which is the employees. can't remember where |
| 2014 | Thanks nicks good explanation |
| merc5559 | Good question. They got me on that one. |
| davidt876 | thanks nick |
| blackyosh1 | eneficiary = held liable if benefit payments not made. defined contribution = employees liable if benefit payments not made defined benefit = employer liable if benefit not made. |
I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
describe types of investors and distinctive characteristics and needs of each
describe defined contribution and defined benefit pension plans
CFA® 2024 Level I Curriculum, Volume 6, Module 3.