Which statement best describes a defined contribution plan's guarantees?

• A. Benefits are not guaranteed and depend on contributions plus investment performance.
• B. Benefits are guaranteed by the sponsor.
• C. Benefits are fixed at retirement regardless of contributions.
• D. Benefits are determined solely by years of service.

Answer: (A)

In a defined contribution plan, the retirement benefit is not guaranteed. The amount you ultimately receive depends on how much is contributed to your account (including any employer matching) and how those funds perform in the chosen investments, after fees. You bear the investment risk, so favorable market performance and low costs can lead to a larger balance, while poor performance or high fees can reduce it. This is distinct from a defined benefit plan, where the benefit is typically calculated from salary and service and is guaranteed by the sponsor. So the statement that best describes a defined contribution plan's guarantees is that benefits are not guaranteed and depend on contributions plus investment performance.