ACME Company is considering starting a retirement plan for its employees. One option ACME is considering is a profit-sharing plan. All of the following are advantages of this type of retirement plan EXCEPT
A) The employer's cost is not affected by the age and the number of employees.
B) Profit sharing plans provide an incentive for employees to work harder and more efficiently.
C) The 10 percent penalty tax does not apply to distributions prior to age 59.5.
D) ACME enjoys greater flexibility in employer contributions.
Question 2
Which of the following statements is true with regard to defined benefit and defined contribution pension plans?
A) It's easier for an employer to determine its annual pension contribution under a defined benefit plan than under a defined contribution plan.
B) When a new pension plan is installed, it's more beneficial for older workers if it's a defined contribution plan rather than a defined benefit plan.
C) The employer bears the investment risk under a defined contribution plan, and the employee bears the investment risk under a defined benefit plan.
D) With a defined benefit plan, the retirement benefit is known is advance but the contributions vary; with a defined contribution plan, the contribution rate is fixed but the retirement benefit varies.
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