Society For Human Resource Management (SHRM) Certified Professional Practice Exam

What type of retirement plan specifies an exact benefit amount for retirees?

1. Defined contribution plan

2. Defined benefit plan

3. Flexible retirement plan

4. Variable retirement plan

The correct answer is: Defined benefit plan

The correct answer is defined benefit plan, which is characterized by its specification of an exact benefit amount that a retiree will receive upon retirement. This type of plan guarantees a predetermined monthly benefit based on factors such as salary history and duration of employment. It provides a stable and predictable income stream for retirees, which can assist in financial planning throughout retirement. In contrast, a defined contribution plan does not guarantee a specific amount at retirement; instead, it depends on the contributions made by the employee and employer, as well as the investment performance of the account. Flexible retirement plans and variable retirement plans typically offer varying degrees of benefits that can change based on investment performance or other factors, and they do not provide the certainty of a fixed benefit amount that a defined benefit plan offers.