In a defined contribution retirement plan, who bears the investment risk?

• A. Government bears risk
• B. Plan administrator bears risk
• C. Employer bears risk
• D. Employee bears investment risk

Answer: (D)

In a defined contribution retirement plan, the employee bears the investment risk because the retirement benefit depends on how the investments in the employee’s account perform. The plan defines how much is contributed, but not how much will be available at retirement—the account’s value rises or falls with market returns and the employee’s investment choices. If investments do well, the account grows; if they perform poorly, the account may be smaller. The employer oversees contributions and plan administration but does not guarantee a specific retirement benefit or investment results. The government does not bear this investment risk.