Defined Contribution

What is Defined Contribution?

A defined contribution plan is a retirement plan in which the employer, the employee, or both make regular contributions, and the retirement benefit depends on the investment performance of those contributions. Common examples include 401(k) plans, 403(b) plans, and profit-sharing plans. Unlike defined benefit plans, the investment risk falls on the employee. Employers may offer matching contributions as an incentive. Defined contribution plans have become the most common employer-sponsored retirement vehicle in the private sector due to their lower cost, portability, and simpler administration compared to defined benefit plans.