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 ?
The modified defined contribution pension plan and the hybrid pension plan can be regarded as improved defined contribution plan.
Previous research on valuing pension guarantees has focused on defined benefit guarantees, with little analysis devoted to guarantees on defined contribution pension plans.(4) But with the growing popularity of defined contribution pensions and their critical role in many recent pension reforms, research analyzing defined contribution guarantees is clearly needed.
Across all workers the average proportion of salary contributed by the employer to a defined contribution pension plan is 1.2%, while among only those workers having such a plan the average is 5.2%.
A defined contribution pension plan, such as the 401(k) in the U.S., allows company employees to set aside some of their salary for retirement with the company sometimes matching all or part of the amount.
If the firm has a defined benefit pension plan, the pension cost of an older worker exceeds that of a younger worker; if it has a defined contribution pension plan, there is no differential effect by age.
A defined contribution pension plan, such as the 401(k) in the United States, allows company employees to set aside some of their salary for retirement with the company sometimes matching all or part of the amount.
(11) This also is evident from data on the incidence of defined contribution pension plan coverage in State and local governments.