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February 19, 2009

Defined contribution plan

Your Guide

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Definition

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.

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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 http://irapublications.com. 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.

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