Defined-Contribution Plan

Defined-Contribution Plan

A retirement plan in which the employee and/or employer make a set dollar amount in contribution 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. Its advantage is that the pensioner, while still making contributions, has the ability to determine ? to a certain extent ? how the contributions are invested. See also: 401(k).

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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 Account—IRA
• Qualified Retirement Plan
• Roth IRA