Which statement best describes a defined benefit retirement plan?

A defined benefit retirement plan is characterized by its guarantee of a specific benefit amount payable to the retiree upon reaching retirement age. This benefit is typically calculated based on a formula that considers factors such as the employee's years of service, salary history, and age at retirement. Because the employer bears the investment risk, the retiree is assured of a steady income post-retirement, providing financial security.

This is distinct from a defined contribution plan, where the benefit amount at retirement is not guaranteed but rather depends on the employee's contributions and the investment performance of those funds. In a defined benefit plan, the employer is responsible for funding the promised benefits, which is why the guarantee is a fundamental characteristic of such plans.

Other options do not accurately describe the essence of a defined benefit retirement plan. Options concerning variable benefits or employee-driven contributions pertain more to defined contribution plans, such as 401(k)s, which do not provide a predetermined payout but instead allow the employee to contribute and manage their own investments.