CFA Practice Question

There are 294 practice questions for this study session.

CFA Practice Question

Select the correct statement(s).

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.
Correct Answer: I and III

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 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.
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