CFA Practice Question

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CFA Practice Question

A defined benefit pension plan ______
A. pays defined benefits for a certain period after retirement.
B. disburses benefits based on the returns on the fund's investments.
C. promises to pay retirees a specific income stream.
Explanation: In a defined benefit pension plan, retirement benefits are "predefined." The employer commits to providing the benefits regardless of the performance of the pension plan. Thus, in this plan, the risk of pension plan performance is borne by the employer and not the employee.

User Contributed Comments 6

User Comment
shasha should A be changed to "pays RETIREES defined MONETARY benefits for a certain period after retirement", we'd take it as correct? wondering why A is not the best answer.
min C is more clear.
rbjohnson Because the length of time used to calculate estimates of PBO, it is not actually the length of time that the employee will be paid the benefit. This will keep going until death.
malawyer A is not right because the payments are NOT limited in time (A is speaking of a "certain" period). Made the same mistake ;-)
ramdabom Not all pension benefits go on for perpetuity. what's wrong with a "certain period"?
Janks all DB plans pay benefits till death of part unless there is a lump sum provision. Period certain provisions are only used if part dies in the "certain" period, and benefits would go to a beneficiary. Even then, the part gets benefits for as long as they are living
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