A Defined Contribution Plan
does not promise a specific
amount of benefit at
retirement. Employees,
employers, or both,
contribute to these plans.
Most often the contribution
will be a percentage of
compensation up to a
certain dollar amount.
Depending on the plan type,
the contributions may or
may not be made each
year, but they are invested
on the employee's behalf,
and the benefits paid to
employees are based on
contributions and any
earnings or loss. For
defined contribution plans,
employers are not required
to make up for any loss on
investments. A defined
contribution plan can be a
profit-sharing plan, an
employee stock ownership
plan, a 401 (k) plan, or a
money purchase pension
plan.
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