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
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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).
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
A successfully completed conversion to a defined contribution plan can leave an enduring financial legacy for both the taxpayers and the work force -- a genuine public sector "win-win" solution.
More and more companies are opting out of defined benefit plans in favor of defined contribution plans. Over 90% of the top 500 companies in the country now offer defined contribution plans, such as the 401 (k).
Moving to a discussion of the effect of pensions on retirement age, they argue that any change will further advantage defined contribution plans. Perhaps so; but such changes might also increase employees' receptiveness to (and desire for) defined benefit plans and result in productivity gains for employees who provide them.
The first step in individualizing defined contribution plans is giving personalized information about the savings rate needed for a reasonably comfortable retirement.
White employees who were auto-enrolled -- contributed 5.2% of pay, on average, to their defined contribution plans; those who were not contributed 8% of pay.
The EBRI analysis adjusted account balances of defined contribution plans and individual retirement accounts (IRAs) based on the asset allocation reported within the plans by using equity and bond market returns from January 1, 2008, to June 19, 2009:
The 401(k) plan is partly responsible for the increase in participation in defined contribution plans. Established in 1978 under Section 401 (k) of the Internal Revenue Code, the 401 (k) plan is a defined contribution plan that has tax advantages for both employees and employers.
is in transition from defined benefit plans to defined contribution plans. On balance, this may be a step in the wrong direction.
Nearly all defined contribution plan participants continued contributing to their plans in the first half of 2017, according to ICI's "Defined Contribution Plan Participants' Activities, First Half 2017."
While 87 percent of those workers have access to a defined benefit plan, only 36 percent have access to a defined contribution plan.
In spite of total participant outflows increasing in 2014, qualified defined contribution plan assets have continued to soar, to over $5 trillion, representing more than 700,000 plans and more than 85 million participants.