General Securities Representative (Series 7) Practice Exam

Who is primarily benefited by a defined benefit plan?

1. Young employees

2. Part-time employees

3. Older employees

4. Self-employed individuals

The correct answer is: Older employees

A defined benefit plan is structured to provide a specified monthly benefit to participants upon retirement, which is usually based on a combination of salary history and years of service. This plan is particularly beneficial for older employees because they typically have the most years of service and hence can accumulate more retirement benefits over time. As employees age, they usually reach their highest earning potential, which translates to a higher benefit calculation upon retirement under a defined benefit plan. Additionally, since these plans are designed to offer a predictable income in retirement, older employees can rely on the benefits for financial security as they step away from their careers. Younger employees and part-time employees may not have sufficient time or contributions into the plan to fully benefit from it, while self-employed individuals typically do not participate in such employer-sponsored plans, as they would set up their own retirement saving options. Thus, older employees gain the most from defined benefit plans due to their longer tenure and higher salary positioning leading into retirement.