Practice Quiz

SPHR Human Resources

Category - Rewards

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Which of the following statements about defined contribution plans is untrue?
  1. Unlike defined benefits plans, defined contribution plans do not promise a specific monthly benefit (or total benefit) at retirement.
  2. Defined contribution plans shift the risk away from the employer (which is where it rests for defined benefit plans) and back onto the employee.
  3. Defined contribution plans are decreasing in popularity, while defined benefit plans are increasing in popularity.
  4. Examples of defined contribution plans include 401(k) plans, employee stock ownership plans, and profit-sharing plans.
Explanation
Answer - C - Defined contribution plans are increasing, not decreasing, in popularity.

Key Takeaway: It is true that, unlike defined benefits plans, defined contribution plans do not promise a specific monthly benefit (or total benefit) at retirement. Defined contribution plans do shift the risk away from the employer and back onto the employee. 401(k) plans, employee stock ownership plans, and profit-sharing plans are examples of defined contribution plans.
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