Defined contribution plan

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Defined contribution plan

A pension plan whose sponsor is responsible only for making specified contributions into the plan on behalf of qualifying participants. Related: Defined benefit plan

Defined Contribution Plan

A retirement plan in which the employee and/or employer contribute a set dollar amount each month. The benefits of a defined contribution plan are not set, and depend upon how well the contributions are invested before the pensioner starts to make withdrawals. The disadvantage of a defined contribution plan is the possibility that the investments will not perform as well as expected, giving the pensioner a less secure retirement. The advantage is that the pensioner, while still making contributions, has the ability to determine how the contributions are invested, at least to a certain extent. See also: 401(k).

Defined contribution plan.

In a defined contribution retirement plan, the benefits -- that is, what you can expect to accumulate and ultimately withdraw from the plan -- are not predetermined, as they are with a defined benefit plan.

Instead, the retirement income you receive will depend on how much is contributed to the plan, how it is invested, and what the return on the investment is.

One advantage of defined contribution plans, such as 401(k)s, 403(b)s, 457s, and profit-sharing plans, is that you often have some control over how your retirement dollars are invested. Your choice may include stock or bond mutual funds, annuities, guaranteed investment contracts (GICs), company stock, cash equivalents, or a combination of these choices.

An added benefit is that, if you switch jobs, you can take your accumulated retirement assets with you, either rolling them into an IRA or a new employer's plan if the plan accepts transfers.

References in periodicals archive ?
Account balance plans: The regulations describe two alternative methods for attributing compensation under account balance plans.
That regulation aggregates deferred compensation arrangements of the same one of eight "types," that is, elective deferrals to account balance plans, nonelective deferrals to account balance plans, nonaccount balance plans, separation pay plans, in-kind benefits and reimbursements, split-dollar life insurance arrangements, modified foreign earned income arrangements, and stock rights plans.
You can assist your clients in determining the RMD by annually requesting year-end balances for IRAs and other account balance plans.
If the failure occurs in a so-called "account balance" deferred compensation plan, then all amounts the employee has in all of your account balance plans are subject to the tax consequences of noncompliance.
7) The section 3121(v) rules for account balance plans are rather straightforward.
11) In other words, so-called account balance plans (defined contribution plans) are generally aggregated and treated as one plan.
The notice provides specific guidance for account balance plans, reasonable ascertainable amounts under nonaccount balance plans, and stock rights.
3121(v)(2)-1(d)(2) distinguishes between account balance plans and nonaccount balance plans.
Under this provision, there are two basic types of deferred compensation plans, account balance plans and nonaccount balance plans.
3121 (v) (2)-1 (c) differentiates between account balance plans and nonaccount balance plans in making the determination of how much compensation has been deferred.
Although the regulations generally require the benefit in an account balance plan to be based on the account's balance, Regs.
For example, if an account plan has several distribution options, the plan may be treated as an account balance plan and, therefore, a reasonable FICA amount may be calculated, if the options are actuarially equivalent.