What best describes a Defined Benefit Plan?

• A. A pension plan that promises a certain income for life after retirement.
• B. A retirement plan that deposits a fixed amount into an investment fund.
• C. A plan allowing employees to choose any investment with no employer contribution.
• D. A plan that promises government-guaranteed benefits.

Answer: (A)

A Defined Benefit Plan is a retirement arrangement that promises a specific income for life after retirement, calculated by a formula usually based on years of service and final or average salary. The employer funds this promised benefit and assumes the investment risk, so the retiree receives a predictable, lifetime pension regardless of how investments perform. This stands in contrast to plans where the contributions are fixed and invested to fund future benefits (the outcome depends on investment performance), or plans where employees choose investments and there may be no employer contribution. It also isn’t inherently a government-backed guarantee—the promise comes from the employer, not the government.