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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 individual retirement plan (IRA) or a new employer's plan if the plan accepts transfers.
- Browse Related Terms: Cafeteria plan, Cash balance plan, Defined Benefit Pension Plan, Defined benefit plan, Defined Contribution Pension Plan, Defined Contribution Plan, Employee Retirement Income Security Act (ERISA), Employer sponsored retirement plan, Federal Insurance Contributions Act (FICA), Flexible spending account, Integrated pension plan, Nondiscrimination rule, Pension, Pension Benefit Guaranty Corporation (PBGC), Plan participant, Portable benefits, Qualified retirement plan, Retirement Accounts, Self-directed retirement plan, Social Security, Vesting, Withholding
All > Business > Finance > Personal Finance > Retirement
A retirement plan through which employers and/or employees contribute to a fund for which only the contribution is defined and benefits will cease when contributions are exhausted. The level of retirement annuity may rise or fall based on investment performance. The State ORP and the South Carolina Deferred Compensation Program’s 401(k) and 457 plans are defined contribution plans.
- Browse Related Terms: 401(k) Savings Plan and 457 Savings Plan, Average Final Compensation (AFC), Defined Contribution Plan, Direct Rollover, IRC Section 401(a), Lump-Sum Distribution, Qualified Domestic Relations Order (QDRO), Qualified Plan, Rollover, Roth 401(k) Savings Plan, Single-Sum Distribution, Tax-Deferred