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Defined-Contribution Plan

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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

What Does Defined-Contribution Plan Mean?

A retirement plan in which a certain amount or percentage of money is set aside each year by a company for the benefit of the employee. There are restrictions on when and how the employee can withdraw these funds without penalties.

Investopedia explains Defined-Contribution Plan

There is no way to know how much the plan ultimately will give the employee upon retirement. The amount contributed is fixed, but the benefit is not.

Related Terms:
401(k) Plan
Defined-Benefit Plan
Individual Retirement AccountIRA
Qualified Retirement Plan
Roth IRA



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40 million Number of nongovernment workers who participate in defined-contribution plans (such as a 401(k)).
Prudential Financial has introduced IncomeFlex, a patent-pending option for use in defined-contribution plans that provides for purchases of future lifetime income with plan assets.
Richman and other critics of the current pension system say it is too expensive and creates a costly drag on government budgets, while a defined-contribution plan would be self-funding.
 
 
 
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