Which of the following statements is true about defined contribution plans?

Defined contribution plans are designed in such a way that the individual participants, typically employees, are responsible for making decisions regarding their investment options and bear the risks associated with those investments. In these plans, the contributions made by both employees and employers are defined, but the investment performance of those contributions is not guaranteed. Therefore, if the investments perform poorly, it directly affects the retirement savings of the individual participant, leading to a situation where the individual bears the investment risk.

In contrast, the other statements depict characteristics of defined benefit plans or misunderstandings about defined contribution plans. For instance, the company does not bear performance risk in a defined contribution plan; rather, it is the individual who assumes that risk through the investment choices they make. Additionally, in defined contribution plans, the assets belong to the individuals participating in the plan, not the firm. Lastly, these plans do not generate pension liabilities for the firm, as the liability is typically associated with defined benefit plans where the company promises a specific payout at retirement.