Paul earns $55,000 during the current year. His employer contributes $3,000 during the year to a qualified retirement plan on behalf of Paul. The amount of the contribution for the year is based on Paul's desire to have a monthly retirement benefit of $3,500. What type of retirement plan is this?

Question

Quizplus · Accepted Answer

The fact that the contribution is based on Paul's desire for a specific monthly retirement benefit of $3,500 suggests that this is a defined benefit plan. In a defined benefit plan, the employer promises to provide a specific retirement benefit to the employee based on a formula that takes into account factors like years of service, salary, and age. The employee does not contribute to the plan, and all investment and longevity risks are borne by the employer.

Paul Earns $55,000 During the Current Year