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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.
The number of defined benefit plans in the U.S. has been steadily declining, as more employers see pension funding as a financial risk they can avoid by freezing the plan and instead offering a defined contribution plan. Examples of defined contribution plans include individual retirement account (IRA), 401(k), and profit sharing plans.
Defined Contribution Plan. Retirement Benefit. Guarantees a specific monthly benefit at retirement, based on salary and years of service. ... Common Examples. Pension. 401(k), 403(b), 457.
These employer contributions to these plans typically vest after some period of time, e.g. 5 years of service. These plans may be defined-benefit or defined-contribution pension plans, but the former have been most widely used by public agencies in the U.S. throughout the late twentieth century. Some local governments do not offer defined ...
401(k) plan: This defined contribution plan allows employees to contribute a portion of their pre-tax salary to a retirement account. Employers often match a portion of the employee’s contributions.
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 ...