Which of the following is a characteristic of contribution plans?

Contribution plans are designed to define the amount of money that an individual and potentially an employer will contribute to a retirement savings account on behalf of the individual. These plans focus on the contributions made, rather than guaranteeing a specific payout at retirement. The primary feature is that the investment risk is borne by the employee, as the eventual retirement benefits depend on the account’s investment performance and the total contributions made over time.

This characteristic distinguishes them from defined benefit plans, which promise a certain payout upon retirement based on a predetermined formula, typically taking into account factors such as salary history and years of service. So, while contribution plans specify how much money is put aside for retirement, they do not guarantee a specific amount to be received at retirement, making the focus on contributions rather than guaranteed benefits key to understanding their nature. Furthermore, while some of these plans may involve pension fund managers, the primary characteristic is about defining contributions rather than management structure.