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 ?
Since 2009, all new hires of nonunion employees and new hires of union employees represented by 28 unions have received defined-contribution plans instead of pensions.
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story about the new Guild contract took pains to point out that publishing companies such as Gannett and McClatchy have also in recent years frozen their pension plans and substituted them with defined-contribution plans, but that doesn't make it any prettier.
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The Health and Welfare Ministry is considering allowing companies to adopt, as early as fiscal 2001, hybrid pension programs combining features of both defined-benefit and defined-contribution plans, a business daily said Tuesday.
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Lately, the trend among small- and medium-sized companies has been toward defined-contribution plans, which shift more responsibility to the employee.