AD Banker Comprehensive Practice Exam

A group deferred annuity or an individual deferred annuity would be most likely used to?

1. Fund a defined benefit plan

2. Fund a defined contribution plan

3. Both answers

4. Neither answer

The correct answer is: Fund a defined contribution plan

A group deferred annuity or an individual deferred annuity is designed to accumulate funds over time before beginning to make periodic payments in the future. In the context of retirement plans, these types of annuities are typically utilized in defined contribution plans, where contributions are made to an individual account for each participant. In a defined contribution plan, the contributions are generally invested, and the ultimate benefit received by the retiree depends on the investment performance of those contributions. By using a deferred annuity, individuals can ensure that the accumulated funds will be converted into guaranteed income during retirement, which aligns with the goals of defined contribution plans. While defined benefit plans focus on providing a predetermined payout based on salary and years of service, they typically use other funding methods and retiree benefit calculations rather than deferred annuities. Thus, the nature of deferred annuities aligns more closely with defined contribution plans where the goal is to grow investments over time before retirement payouts begin.