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A defined contribution (DC) plan is a type of retirement plan in which the employer, employee or both make contributions on a regular basis. [1] Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts (through employee contributions and, if applicable, employer contributions) plus any investment earnings on the money in the account.
Retirement plans are classified as either defined benefit plans or defined contribution plans, depending on how benefits are determined.. In a defined benefit (or pension) plan, benefits are calculated using a fixed formula that typically factors in final pay and service with an employer, and payments are made from a trust fund specifically dedicated to the plan.
In the US, specifies a defined benefit plan to be any pension plan that is not a defined contribution plan (see below) where a defined contribution plan is any plan with individual accounts. A traditional pension plan that defines a benefit for an employee upon that employee's retirement is a defined benefit plan. In the U.S., corporate defined ...
Instead, defined contribution plans like 401(k)s are now the standard way most people save for retirement. 401(k) plan: This defined contribution plan allows employees to contribute a portion of ...
Defined benefit plans and defined contribution plans are two employer-sponsored ways of helping to provide employees with a comfortable retirement. The difference between them lies primarily in ...
Defined Benefit Plan vs. Defined Contribution Plan. Most are familiar with defined contribution plans like a 401(k). You might be wondering how these accounts differ from a defined benefit plan.