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 ?
If you like working with defined-contribution plan participants, you're better off being in the Northeast or West.
Households with no remaining years to contribute to their defined-contribution plan feel the impact of a defined-benefit accrual more keenly than those who have just a few more years left to contribute.
Management and union negotiators at The Associated Press said on Friday they had struck a tentative deal that would freeze the news cooperative's longstanding defined-benefit plan and substitute it with a defined-contribution plan. Additionally, union members will vote on a 33-month contract that gives them 1-1/2 percent annual pay raises, no health-insurance payment increases and improved job security.
The most common replacement for the traditional defined-benefit plan is a defined-contribution plan, such as a 401(k) or 403(b), which enables savings but generally does not address the issue of investment risk and longevity risk upon retirement.
In West Virginia, for example, only 74 of the 22,000 teachers in the defined-contribution plan have accrued more than $100,000 over the course of their careers.
It elected to close out its defined-benefit pension plan, which it did in 2004, and roll out a new defined-contribution plan; that started with new employees, then 60-90 days later with the rest of the employee base.
ERISA, which applies only to private employers, requires that any retirement plan assets, whether under a traditional pension one or a defined-contribution plan such as a 401(k), be held in trust, separate from corporate assets and thus secure from company creditors.
Moving toward a privatized defined-contribution plan would, by definition, convert our social security system into a fully funded plan.
Due to these restrictions, the introduction of multitier plans may be the available approach; with this structure, a defined-contribution plan is the only option available to new employees, and existing employees have the option of staying under the old plan or moving to the new arrangement.
So for individuals earning $82,501 or higher per year who do not contribute to any other type of defined-contribution plan and whose employer does not contribute to their 401(k), the new limits would increase their 401(k) contribution limit by up to $3,500.
Meanwhile, the lower house's Committee on Health, Labor and Welfare approved another pension reform bill authorizing introduction of a defined-contribution plan modeled after the U.S.
This rule requires coordination of post-retirement medical benefits provided to key employees with their defined-contribution plan benefits.