Module 2

Question 1

1.1 Two broad choices an employer has in selecting a plan to provide benefits to employees

Answer 1

1. Defined Benefit Plan - determinable benefit
2. Defined Contribution - contribution is fixed

Question 2

1.2 With Defined Contribution, employee’s retirement benefit will depend on factors such as:

Answer 2

a) level of the employer’s contribution
b) age at entry
c) retirement age
d) investment earnings

Question 3

1.3 Advantages of a defined benefit plan

Answer 3

a) structured to achieve specific income replacement

b) integrated on basis of SS benefits - forced to adjust if integration is desired

c. payable in full in the event of death

d. equitable allocation of employer contributions

e. risk of inflation transferred from employee to employer

f. investment risk borne by employer

g. benefits for younger terminated employees can be less costly than with defined contribution