In a defined contribution plan, who determines the investment strategy?

• A. The employer
• B. The employee
• C. The government
• D. Financial advisors only

Answer: (B)

In a defined contribution plan, the investment strategy is primarily determined by the employee participating in the plan. Unlike defined benefit plans, where the employer bears the investment risk and is responsible for determining the investment strategy, in defined contribution plans, employees typically have the autonomy to choose how their individual accounts are invested. This allows employees to select from various investment options provided by the plan, which may include mutual funds, stocks, and bonds, based on their personal financial goals, risk tolerance, and investment horizon.

While employers can influence the investment options available within the plan, the ultimate authority on how to allocate contributions falls to the individual employee. This structure encourages employees to take an active role in managing their retirement savings, which contrasts with plans where the employer or government takes on more direct control over investment decisions.