Defined Contribution Plan
RetirementGlossary term
Definition
A retirement plan where employees and/or employers contribute to individual accounts, and the retirement benefit depends on contributions and investment performance. Examples include 401(k), 403(b), and 457(b) plans. The employee bears the investment risk.
Related terms
- 401(k)A tax-advantaged retirement savings plan offered by employers that allows employees to contribute a portion of their salary before taxes. Many employers offer matching contributions up to a certain percentage.
- Defined Benefit PlanA retirement plan where the employer guarantees a specific monthly benefit at retirement based on a formula using salary and years of service. Traditional pensions are the most common type. The employer bears the investment risk.
- 403(b) PlanA tax-advantaged retirement plan for employees of public schools, nonprofits, and certain religious organizations. Similar to a 401(k) but with different employer eligibility rules. Contributions are made pre-tax and grow tax-deferred until withdrawal.
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