Defined Contribution Plan

A defined contribution plan is one financial path which can be taken by employers in providing retirement funds to their long term employees for use after they have left the labor force. A defined contribution plan, as a kind of pension fund plan, will be set up to fix the contributions which the employer must make for the post-employment use of the former employee at the point where that condition has taken hold.

A defined contribution plan can also be contrasted to another kind of pension plan in which retirement savings are not maintained at a fixed level but are instead directed into investments, at the discretion of the employer or some other individual, such as a pension plan consultant, as may be preferred by companies as a way of minimizing the financial burden placed upon themselves, but not necessarily by employees due the variable performance to which stocks and other investments can be prone.

A defined contribution plan is therefore at some, though not all, points preferred by people in the labor force as a way of securing the monetary benefits to be realized through the pension plan, rather than taking the chance of either positively increasing the financial holdings of the pension plan or negatively cutting down on the funds held in the pension plan. A defined contribution plan is provided for specifically for the legal purposes of the U.S. labor market through the source of United States Code, Chapter 26, which requires fixed contributions by both employee and employer.