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February 19, 2009

Defined contribution plan

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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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