Explanation

Correct Answer: B - defined contribution pension plans only.

Key Concepts:

1. Defined Benefit (DB) Pension Plans:

   • The employer/sponsor bears the investment risk
   • The employer guarantees a specific retirement benefit amount based on factors like salary history and years of service
   • Investment performance affects the employer's funding requirements, not the individual's benefits
   • If investments perform poorly, the employer must contribute more to meet the promised benefits

2. Defined Contribution (DC) Pension Plans:

   • The individual employee/investor bears the investment risk
   • The employer contributes a defined amount (e.g., 401(k) matching contributions)
   • The retirement benefit depends on investment performance of the individual's account
   • Poor investment performance directly reduces the individual's retirement benefits
   • Individuals make investment choices and bear the consequences

Why not A or C:

• A is incorrect because in defined benefit plans, the employer/sponsor bears the investment risk, not the individual.
• C is incorrect because defined benefit plans do not transfer investment risk to individuals.

Additional Context:

• In defined contribution plans, individuals are responsible for their own investment decisions and outcomes
• The shift from DB to DC plans in many countries has transferred investment risk from employers to employees
• This question tests understanding of risk allocation in different pension plan structures