Definition of defined contribution plan

An employer-sponsored qualified retirement plan, a defined contribution (DC) plan allows employees to defer a portion of salary. The funds receive beneficial tax treatment and are placed into an individual account for each participant.

The money is invested in mutual funds or individual stocks on behalf of the employee. With such plans, employers traditionally will match a portion of the employee’s contribution or contribute an amount equal to a percentage of the employee’s salary. Employees bear the investment risk and can typically guide the selection of investments within set parameters.

The contributions, plus or minus any investment gains, are used to fund a portion of the individual’s retirement. In the U.S., prime examples of DC plans are 401(k) plans and 403(b) plans. [1]

FT Articles & Analysis

No articles are associated with this term