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Which of the following statements concerning funding policy and objectives is (are) correct?​ ​I​Defined-benefit plans are...

Which of the following statements concerning funding policy and objectives is (are) correct?​ ​I​Defined-benefit plans are required to adopt a funding policy, but it is optional for defined-contribution plans. ​II​In defined-contribution plans, the objective may be to offer investment vehicles so that participants can make up their own portfolios. (A)​I only​​(C)​Both I and II (B)​II only​​(D)​Neither I nor II

Solutions

Expert Solution

(A) I only is the right answer

Explanation: I) In the Defined-contribution plans the employer or the employee or both make a contributions on regular basis. It is a kind of pension plan. Whereas in Defined-benefit plans, though it is also a pension plan, no such contributions are made. Hence, the Defined-benefit plans are required to adopt a funding policy and the Defined-contribution plan need not require any such finding policy or may consider the contirbution as a policy for their funding, i.e. it is optional to adopt a funding policy. Therefore, the following statement stands true.

Explanation: II) In a Defined-contribution plan the employers and the employees make fixed contributions into an individual account which is later invested in the stock market and the returns on these investments, irrespective of positive or negative is credited to the individual's account and on retirement this account is itself used to provide retirement benefits through either a purchase of an annuity which becomes a source of regular income or in any other form as the case may be. Hence, the defined-contirbution plans are not formed with the objective to offer investment vehicles to the participants. Therefore, the following statement stands false.

jeff jeffy answered 1 year ago
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