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Defined Contribution Plan

A retirement plan in which both employer and employee contribute to the retirement account although the amount to be received at retirement is not fixed. This investment is at the risk of the employee. A Defined Contribution Plan is a retirement benefit plan where both the employer and employee can contribute towards the employees’ retirement fund. These types of contribution plans are labeled, ‘defined’ because the law determines what amounts an employer must contribute in order to be considered a contribution plan. Qualified retirement plans allow pre-taxed contributions to grow tax deferred. There is no mandatory matching requirement for a Defined Contribution Plan but the employer may choose to match or make contribution. The employee chooses where his or her money is deposited and how it is invested and the employee is 100% vested in their contributions. There is no mandatory annual contribution. Other types of plans, according to terms of the plan’s contract, both the employee and employer contribute based on a percentage of annual income.

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