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 ?
A new issue brief from the Center for State and Local Government Excellence, Defined Contribution Plans in the Public Sector: An Update, finds that while there has been much discussion of shifting from defined benefit to defined contribution plans, relatively few governments have actually done so.
The book is divided into four sections: Justification for the Employer-Based System, Getting Defined Benefit Plans Ready for the Future, Ways to Improve Defined Contribution Plans, and lastly, Understanding the Political Dimensions of Pension Reform.
Defined contribution plans place more responsibility and ownership on employees to ensure their future financial success.
Annual additions limit for defined contribution plans.
Many companies that aren't shirking their pension obligations by filing for bankruptcy are switching their defined benefit pension plans--which promise a fixed monthly check--over to riskier defined contribution plans like 401(k)s, or to no plans at all.
And defined contribution plans were much easier for employees to understand (and appreciate) than defined benefit plans.
As defined contribution plans proliferate, the transfer of ownership responsibilities will transform health care into a consumer-driven industry.
The Internal Revenue Service has issued final regulations on the special rules relating to optional forms of benefits under defined contribution plans.
In Letter Ruling 9513030, an employer maintained four qualified plans for the benefit of its employees; two were defined contribution plans and two were defined benefit plans.
Government leaders are giving defined contribution plans a closer look as they struggle to provide quality retirement benefits at a cost their government can afford.
While the vast majority of public-sector employees still participate in defined benefit plans, there has been a recent increase in interest in defined contribution plans by both public-sector employers and employees.
In 1982, the Tax Equity and Fiscal Responsibility Act reduced by one-third, and then froze for many years, the maximum annual contribution to defined contribution plans and the maximum annual benefit that could be paid by a defined benefit plan.