Module 7 Quiz

Question 1

Fluffle Company bears the entire cost of its employee pension.

Which type of plan does Fluffle have?

Answer 1

Noncontributory plan

Question 2

Who benefits from the gain (or risks the loss) from the assets contributed to a defined contribution plan?

Answer 2

The employee

Question 3

In a defined benefit plan, what is meant by the process of funding?

Answer 3

Making the periodic contributions to a funding agency to ensure that funds are available to meet retirees’ claims

Question 4

What is the purpose of a pension plan?

Answer 4

For an employer to provide benefits to retired employees

Question 5

What is the purpose of a fomula in a defined benefit plan?

Answer 5

To define the benefits that the employee will receive at the time of retirement

Because a defined benefit plan specifies benefits in terms of uncertain future variables, a company must use a formula to define the value of future benefits to the employee and establish an appropriate funding pattern to ensure the availability of funds at retirement in order to provide the benefits promised.