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 ?
Advanced Pension Case Studies from a Payroll Perspective Offers real-life examples of complex pension plan enrolments, deductions and reporting within defined benefit and defined contribution pension plans, as well as deferred profit sharing plans and registered retirement savings plans.
In the case of defined contribution pension plans, the only element fixed in advance is the size of the contribution; the beneficiary would suffer both the risk related to pension fund investments as well as the one related to future inflation.
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We are excited to be part of the scheme, which is widely expected to become one of the largest defined contribution pension plans in Europe.
1, DOE's current policy and practices do not require that contractors offer defined contribution pension plans to new employees in order for contractors to be reimbursed for benefit costs.
The basic characteristics of defined benefit and defined contribution pension plans are shown in Table 2.
pension fund system, away from company-organized and company-managed defined benefit pension plans and toward a system of employee-directed defined contribution pension plans.
Members of defined contribution pension plans could face significant shortfalls in their retirement benefits because of falling investment returns, lower annuity rates and increased life expectancy, according to William M Mercer.
Some members of company-run defined contribution pension plans could face a lower standard of living in retirement, according to a survey.
The companies are forming a 50/50 joint venture in anticipation of legislative changes that are expected to create a new breed of defined contribution pension plans.
The FASB then asked the AICPA to address the issue as it relates to defined contribution pension plans.