LLQP Segregated Funds & Annuities · Component 2.4 · 30% of the exam
The main risk to a member of a DC plan compared with a DB plan is:
- AEmployer bankruptcy takes the money, since DC contributions are held on the employer's balance sheet until retirement
- BThe pension formula may be changed by the sponsor, reducing the benefit the member has already earned
- Investment and longevity risk, since income depends on contributions, returns and the cost of converting to income
- DNo particular risk, since the member's account is guaranteed by the pension regulator
Correct answer: C) Investment and longevity risk, since income depends on contributions, returns and the cost of converting to income
DC members bear market and decumulation risk; DB members bear sponsor solvency risk. The agent's advice addresses the DC member's exposure.
Why the other options are wrong
- ADC assets are held in trust, separate from the employer.
- BA DC plan has no benefit formula; that is a defined benefit feature.
- DDC members face real investment and longevity risk.
Exam tip
DC risk: investment + longevity; DB risk: sponsor solvency.
Common mistake
Treating DC balances as a guaranteed pension.
What this tests
CISRO competency component 2.4 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 2
- A segregated fund's 'guaranteed amount' after a partial withdrawal under proportional reduction is:
- A distinctive estate advantage of a segregated fund over a non-registered mutual fund held jointly with a child is:
- Segregated fund guarantees are most valuable relative to their cost when:
- A segregated fund's annual statement reports:
- Compared with a segregated fund, an exchange-traded fund (ETF) generally offers:
- A segregated fund's 'automatic death benefit reset' feature:
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.