An employee survey at a company indicates that many employees are unhappy with the retirement plan

Question:- An employee survey at a company indicates that many employees are unhappy with the retirement plan. They would prefer one that would result in employees being paid a fixed amount of money each month. What type of plan would better match the employees’ preferences?

A. 401k plan

B. 403b plan

C. Individual retirement arrangements

D. Thrift savings plan

E. Defined benefits plan

Answer:- The correct answer is E.Defined benefits plan

Explanation:

A defined benefits plan would be better suited to employees’ preferences as their desire for a retirement plan that gives them an assured monthly income.

In a defined benefits plan, the employer commits to provide a specific monthly benefit upon retirement. The amount depends on a formula that takes into account the salary history and duration of service. The employer pays into the plan and bears investment risk. After retiring, a retiree receives regular monthly payments which continue the entire rest of his life according to the agreed on formula.

401k, 403b, IRA and thrift savings plans offer retirement income subject to investment returns while the defined benefits plan has a guaranteed predictable lifetime stream of money in retirement. Since the survey revealed that employees prefer to receive a set monthly payment, defined benefits plan is more suitable. It provides the security of income by guaranteeing a fixed monthly benefit that is not affected based on market conditions. This type of plan passes the investment risks from employee to employer.

To summarize, a defined benefits pension plan offers employees their preferred level of income certainty in retirement through fixed payments for life. Such a plan would be more effective in meeting their needs if compared to account based plans such as 401ks.