CFA Practice Question

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CFA Practice Question

Company incentives for using a defined contribution pension plan instead of a defined benefit plan include ______.

I. the fact that the employer has no future liability beyond contributions
II. a tax exemption for pension investment earnings
III. potential for earnings management
IV. a paternalistic attitude to employees, since the employer maintains all obligation risks
Correct Answer: I only

User Contributed Comments 3

User Comment
davidt876 II - applies to both defined contribution and benefit, so it's not an incentive to use one over the othe
UcheSam @davidt876 II only applies to Defined Benefit Plant as Defined Contribution Plan does not have pension investment earnings. Pension contributions are expense in the period services was earned, although tax deductible.
nik24 Why not III ? Since, it can be used as a tool manage net income
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