Save time with our cheat sheets, fact sheets, checklists & books!

February 19, 2009

Defined contribution plan

Your Guide



What is a defined contribution plan?

An employer sponsored qualified-plan , where employees receive a promised contribution to their account . The contribution can be mandatory ( required each year) or discretionary, depending on the type of defined contribution plan. An example of  a defined contribution plan with a mandatory contribution feature is a money purchase pension plan. An example of a defined contribution plan with a discretionary contribution feature is a profit sharing plan.

Other examples of defined contribution plans include  target benefit plans, Employee stock ownership plans (ESOPs) ,stock bonus plans, 401(k) plans and thrift plans.

Referring Cite

IRC § 414(i), ERISA §3(34);

Additional Helpful Information

The employee’s benefit ( account balance ) in a defined contribution plan is the contributions made to the employee’s account, adjusted by earnings and losses.

Related Articles Tutorial or Other Content

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.


Keep Learning


Definition A deduction is a Tax write-off which is allowed for contributions to traditional IRAs or employer sponsored plans. Individuals who are active participants are

Annual Addition Limit

Definition The annual Addition limit is the maximum amount that may be added to a defined contribution plan on behalf of a participant for any

SIMPLE 401(k) Plan

Definition A SIMPLE 401(k) plan is a 401(k) plan  established by a small business for it’s employees. Earnings accrue on a tax-deferred basis and distributions

Salary Deferral Contribution

Definition A contribution made pursuant to a participant’s election to have a portion of his/her salary/wages  contributed to his/ her employer sponsored plan  rather than

Be among the first to know when

IRA Rules