Defined Contribution Plan Definition
An individual account plan that allows an employer to contribute a specific amount of money that is distributed to the accounts of each of the plan participants, generally for benefit purposes.
A defined contribution provides a means for a company to set aside dollars to pay for certain employee benefits. For example, many retirement plans include a defined contribution plan at the onset. This gives the employer the opportunity to contribute a specific amount oftentimes matched at a percentage to what the employee contributes.
Numerous factors determine the retirement benefit received under a defined contribution retirement plan. Some of these factors include the distribution or withdrawal option at the time of retirement and the amount of fund contributed. This type of plan fits under the Internal Revenue Service’s Code 403(b), Individual Contribution and 401(a), Employer Contribution.
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Advantages of Defined Contribution Plans