Which of the following applies to contribution plans
Many offer income to surviving spouses of employees after the employee dies
They offer regular guaranteed income to retired employees for the rest of their lives
Funds are invested and may grow or shrink depending upon economic changes
They are now less common in private business than they are in the public sector
Funds are invested and may grow or shrink depending upon economic changes.
They are now less common in private business than they are in the public sector.
The statement that applies to contribution plans is:
- Funds are invested and may grow or shrink depending upon economic changes.
Contribution plans typically involve investing funds with the goal of providing retirement income. The funds are invested in various assets, such as stocks and bonds, and their value can fluctuate depending on economic conditions.
The other statements do not generally apply to contribution plans:
- Many contribution plans do not offer income to surviving spouses of employees after the employee dies. This is usually provided by pension plans or other types of retirement plans.
- Contribution plans do not generally offer regular guaranteed income to retired employees for the rest of their lives. This is more commonly provided by pension plans or annuities.
- The statement about the prevalence of contribution plans in private business versus the public sector can vary, and there is no definitive conclusion that they are less common in private business. It depends on the specific company or organization.
The correct option from the choices given that applies to contribution plans is:
Funds are invested and may grow or shrink depending upon economic changes.
Explanation:
Contribution plans, also known as defined contribution plans, are retirement plans where the contributions made by the employer and/or employee are invested into various investments, such as stocks, bonds, or mutual funds. These investments have the potential to grow or shrink over time based on the performance of the underlying investments and the overall economic conditions.
Unlike defined benefit plans, where retired employees receive a regular guaranteed income for the rest of their lives, contribution plans do not guarantee a specific retirement benefit amount. Instead, the retirement benefit is based on the total contributions made, investment returns, and experience of the individual account.
Regarding the other options:
- Many contribution plans do not offer income to surviving spouses of employees after the employee dies. Instead, the benefits of the plan are typically passed on to the account beneficiary designated by the employee.
- While some contribution plans may offer regular income payments during retirement, it is not a guaranteed income for life as in defined benefit plans.
- Contribution plans, such as 401(k) plans, are actually more common in the private business sector rather than in the public sector. These plans are widely offered by private employers as a way to provide retirement benefits to their employees.