Which characteristic is associated with a defined benefit pension plan?

In a defined benefit pension plan, the characteristic that is most closely associated is that it generates a pension liability. This type of plan promises a specified monthly benefit to retirees, which is typically based on factors such as salary history and duration of employment. Consequently, the company is obligated to ensure that there are sufficient funds to meet these promised benefits, creating a pension liability on the company's balance sheet.

This liability must be calculated based on actuarial assumptions, which take into account factors like employee longevity, retirement age, and expected returns on plan assets. As the plan sponsor, the company must manage the plan's funding to fulfill its commitment to the employees, leading to ongoing financial obligations.

In contrast, while it is true that the company bears market risk (which is inherent to defined benefit plans), the defining characteristic of generating a pension liability is more encompassing of the obligations presented to the company. The plan assets do not belong to the individual, as they remain with the pension plan to fund the obligations, and there is a clear financial liability for the company to cover the promised benefits.