Certified Financial Planner (CFP) Practice Exam · Question
What is the main distinction between a defined benefit (DB) pension plan and a defined contribution (DC) pension plan?
A defined benefit plan guarantees a specific pension income in retirement, often based on salary and years of service, while a defined contribution plan only sp
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Question: What is the main distinction between a defined benefit (DB) pension plan and a defined contribution (DC) pension plan?
Answer options:
- DB plans are only for government employees, while DC plans are for private sector. ✅ DB plans guarantee a specific retirement income, while DC plans promise specific contributions.
- DB plans involve mandatory employee contributions, while DC plans are optional.
- DB plans are insured by government agencies, while DC plans are not.
Correct answer: DB plans guarantee a specific retirement income, while DC plans promise specific contributions.
Explanation: A defined benefit plan guarantees a specific pension income in retirement, often based on salary and years of service, while a defined contribution plan only specifies the contributions made, and the retirement benefit depends on the investment performance of those contributions.
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