Question

Which of the following statements about defined contribution plans is incorrect? a. Defined benefit plans are used more often by large corporations than by small companies b. In a defined contribution plan, the employer must make larger-than-average contributions to the pension plan when investment returns have been below expectations. c. In general, employees can choose the investment vehicle under a defined contribution plan. Thus, highly risk-averse employees can choose low-risk investments, while more risk-tolerant employees can choose high-risk Investments d. A defined contribution plan places the risk of poor pension portfolio performance on the employee e. The PBGC insures a portion of pension benefits

Answer 1

A defined contribution plan, like a 401(k) or 403(b), requires you to put in your own money.

Thus, the investment risk lies in the hands of the employee.

b. In a defined contribution plan, the employer must make larger-than-average contributions to the pension plan when investment returns have been below expectations.

The above statement is incorrect.