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 ?
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.
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.
This rule requires coordination of post-retirement medical benefits provided to key employees with their defined-contribution plan benefits.
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.
And a shot was fired across the bow of the critics of defined-contribution plans who say that major employers wouldn't dare try it: The Pacific Business Group on Health announced recently that its members' 4 million employees would be offered a defined-contribution plan next year, in some cases exclusively
Thirty-two percent of the respondents had replaced a defined-benefit plan with a defined-contribution plan within the past five years.
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.
The measure is certain to face stiff resistance from members of the state's powerful public employee unions, who feel the current pension system, called a defined-benefit plan, provides better benefits than Richman's defined-contribution plan.
The award adopts the new enhanced defined-contribution pension plan for new employees and provides current employees the choice -- the same as for some other work groups and management -- to move into the same enhanced defined-contribution plan or remain in their existing defined-benefit plan.
As a result of freshly signed legislation, new West Virginia educators hired as of July 1 last year were channeled into a defined-benefit retirement plan; yet on July 1, 2006, Alaska newbies are to be pushed into a defined-contribution plan.
401(k) plans can make distributions to participants, even if the client company establishes its own successor defined-contribution plan.