Question

4. Unlike defined-benefit pension plan assets, defined-contribution pension plan assets: A. are held by the individual participants in income-producing investment accounts. B. are reported in the sponsoring company’s financial statements. C. must be invested entirely in the sponsoring company’s securities. D. All of the above are true. E. None of the above is true.

Answer 1

A Defined Contribution Pension plan asset is funded primarily by the employee. The employer may or may not match the contribution by the employee. The employer does not have much obligation with respect to these plans since they are primarily funded by employees themselves. They require little work to maintain, administer and co-ordinate the process. The employee is responsible for making contributions and investing in the investments offered by the plan. As such, the correct answer is Option A - Are held by the individual participants in income-producing investment accounts.

Option B is incorrect. It is generally not reported in the sponsoring company financial statements because the company does not make any contributions and it is the employee who makes the contributions.

Option C is incorrect. It is not required that the contributions must be invested entirely in the sponsoring company's securities. Employee is free to choose his investment opportunities and accordingly invest. As such, this option is incorrect.

Option D is incorrect. All the answers choices are not correct and hence this option is invalid.

Option E is incorrect because Option A is correct and hence is the answer.