Pension Plans Quiz: Defined Benefit vs. Defined Contribution
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Questions and Answers

What is a pension?

  • A fixed amount paid by the government upon retirement
  • A lump sum payment made to support the person's retirement from work
  • A payment made after involuntary termination of employment before retirement
  • A fund into which amounts are paid regularly during an individual's working career (correct)

    • What is a 'defined benefit plan' in relation to pensions?

  • Defined amounts paid in during working life
  • Fixed amount paid after involuntary termination of employment before retirement
  • Defined periodic payments made in retirement (correct)
  • Regular payments for life after retirement

    • How does a 'defined contribution plan' work for pensions?

  • Defined periodic payments made in retirement
  • Regular payments for life after retirement
  • Fixed amount paid after involuntary termination of employment before retirement
  • Defined amounts paid in during working life (correct)

    • What distinguishes pensions from severance pay?

    <p>Pensions are usually paid in regular amounts for life after retirement</p> Signup and view all the answers

    In what form are retirement pensions typically provided?

    <p>Guaranteed life annuity</p> Signup and view all the answers

    Study Notes

    Pensions Overview

    • A pension is a financial arrangement that provides retirees with a fixed income, typically during their retirement years.
    • Pensions are designed to replace a portion of the income lost due to the cessation of work.

    Defined Benefit Plan

    • A defined benefit plan guarantees a specific retirement benefit amount based on factors such as salary history and years of service.
    • This type of plan provides predictable income, making it easier for retirees to plan their finances.

    Defined Contribution Plan

    • A defined contribution plan allows employees and employers to contribute a predetermined amount into an individual retirement account.
    • The retirement benefit depends on the amount contributed and the performance of investments selected, which can lead to variable outcomes.

    Distinction from Severance Pay

    • Pensions provide ongoing income for retirement, whereas severance pay is a one-time payment given to employees upon termination.
    • Severance pay is typically based on length of service and last salary, while pensions are ongoing, usually linked to working history and retirement age.

    Forms of Retirement Pensions

    • Retirement pensions are typically provided as monthly payments, ensuring a steady income throughout retirement.
    • Some pensions may offer a lump-sum payment option, depending on the plan and individual circumstances.

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    Description

    Test your knowledge of pension plans with this quiz that covers the differences between defined benefit and defined contribution plans, as well as the key concepts related to retirement savings and income.

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