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Basic Question 1 of 6
Select the correct statement(s).
II. The employer is the beneficiary of a defined contribution trust.
III. The employer is the beneficiary of a defined benefit trust.
IV. Employees are the beneficiaries of a defined benefit trust.
I. Employees are the beneficiaries of a defined contribution trust.
II. The employer is the beneficiary of a defined contribution trust.
III. The employer is the beneficiary of a defined benefit trust.
IV. Employees are the beneficiaries of a defined benefit trust.
User Contributed Comments 15
| User | Comment |
|---|---|
| yanpingz | I thought it should be II and IV. Anybody have an explanation why it's I and III? |
| nick | For a defined contribution trust, the employer does not care the result of the investment, so the employees are the beneficiaries because what they get is what's in the trust. For a defined benefit trust, the employees don't care the result. They get what's specified in the contract. The employer, however, gets what's in the trust. |
| nike | "beneficiary" does not mean "benefits". laurenduvall is right. |
| ostrich | I think what is important here, is to remember the details! |
| Masterkang | Why?? It's always the employees who benefit from pension plans, whether it is a defined contribution or a defined benefit scheme should not matter. Therefore, the answer should be I and IV. |
| noonah | The beneficiary of a plan assumes the risk of that plan, and hence I and III are correct. |
| thekapila | You are right noonah..as for defined contribution employee manages and for defined benefit employer manages plan assets. |
| creativemny | III is correct as the employer is responsible for any shortfall of the plan. The employees will receive their benefits unless the employer defaults. |
| quantwannabe | creativemny, you are right. III is correct |
| vi2009 | Good question and good to realize now! Yes, creativemny and noonah are right. |
| cslau83 | If employer are the beneficiaries then should be Non-Current ASSETS. Anyway, there is a section in another volume which states that investment manager is responsible to the ultimate benefeciaries of pension funds which is the employees. can't remember where |
| 2014 | Thanks nicks good explanation |
| merc5559 | Good question. They got me on that one. |
| davidt876 | thanks nick |
| blackyosh1 | eneficiary = held liable if benefit payments not made. defined contribution = employees liable if benefit payments not made defined benefit = employer liable if benefit not made. |
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Learning Outcome Statements
describe types of investors and distinctive characteristics and needs of each
describe defined contribution and defined benefit pension plans
CFA® 2024 Level I Curriculum, Volume 6, Module 3.