LLQP Segregated Funds & Annuities · Component 1.2 · 35% of the exam
A defined benefit (DB) pension plan promises:
- AA return on contributions equal to the plan's investment performance over the member's career
- A formula-based retirement income, with investment and longevity risk on the sponsor
- CAn account balance that the member converts to income at retirement
- DA benefit that depends on the sponsor's profits in the years before the member retires
Correct answer: B) A formula-based retirement income, with investment and longevity risk on the sponsor
DB pensions are valuable guaranteed income. Assessing a client's DB entitlement changes the risk capacity of other assets.
Why the other options are wrong
- AThe benefit is formula-based, not return-based.
- CAccount balances are defined contribution features.
- DProfit-based contributions describe a DPSP, not a DB pension.
Exam tip
DB: formula income, sponsor bears risk. DC: account balance, member bears risk.
Common mistake
Advising a client to commute a DB pension without full analysis.
What this tests
CISRO competency component 1.2 — Assess the client's needs and situation — which is weighted at 35% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 1
- The first step before recommending a segregated fund or annuity is to:
- A client's 'time horizon' for an investment is:
- 'Risk tolerance' in an investor profile refers to:
- A client says he wants 'high returns with no risk of losing money'. The agent should:
- Investment objectives are commonly classified as:
- Why is the client's marginal tax rate relevant to a segregated fund recommendation?
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.