Question

I am offered by life insurance companies and financial firms. The customer pays periodic premiums or a lump sum in return for a payment each year upon retirement. Who am I?

	a.	a defined contribution plan
	b.	a defined benefit plan
	c.	an annuity
	d.	Social Security
	e.	long-term care insruance

IRAs and 401(k) plans are examples of

	a.	pension plans administered by the federal government.
	b.	pension plans administered by different state governments.
	c.	pension plans administered by the FDIC.
	d.	defined benefit pension plans.
	e.	defined contribution pension plans.

Defined contribution plans are employer-based pension plans

	a.	with promised monthly payments upon retirement for a fixed number of years.
	b.	with promised monthly payments upon retirement for the rest of the worker's life.
	c.	consisting of an individualized fund with the worker and possibly the employer contributing to it over time.
	d.	consisting of matching employee and employer funds paid to the government for existing retired people.
	e.	consisting of funds deposited in an identified bank account.

Answer 1

1. The correct option is c. annuity, since it satisfies all components of the statement :periodic premiums or a lump sum in return for a payment each year upon retirement

Since in a defined benefit plan a customer does not pay premiums and relates to a pension scheme

and a defined contribution plan cannot specify the actual amount that will be received upon retirement and depends on the money accumulated in a person's account based on their contribution (can include employer's contribution as well)

2. IRAs and 401(k) plans are examples of e. defined contribution pension plans

since these are administered by individuals themselves

3. Defined contribution plans are employer-based pension plans c. consisting of an individualized fund with the worker and possibly the employer contributing to it over time.

since it cannot specify the benefit that an individual will receive at the end of the period, hence there are no promised payments that are defined for such plans.