What is a significant disadvantage of a Retro Plan?

A significant disadvantage of a Retro Plan is the assumption of risk and potential future liabilities. This type of plan typically allows companies to experience lower initial costs but often leads to greater long-term obligations. Essentially, while a Retro Plan can provide upfront savings, it can expose the organization to future costs that could be higher than anticipated, creating a financial liability risk.

The nature of the Retro Plan means that it can essentially be structured to reflect actual experience and claims over time, which makes the company responsible for any deficits that arise from underestimating claims costs. This future liability risk can be substantial, as claim experiences can vary and lead to unexpected financial burdens.

On the other hand, other options present different aspects of plan characteristics that may not specifically highlight the underlying issue of risk exposure and future liabilities as directly. Therefore, the focus on risk and future liabilities as a disadvantage stands out as a critical factor in evaluating the challenges associated with Retro Plans.