Capterra Glossary
Defined Contribution Plan
A defined contribution plan is a voluntary workplace retirement plan. An employee owns, directs, and primarily funds this plan by contributing money to it regularly. Although not a legal requirement, employers often make matching contributions, which increases the value of the plan. Examples of defined contribution plans in the United States include 401(k) and 403(b) plans. There are restrictions on how and when employees can withdraw funds from a defined contribution plan because of its tax-deferred status. There are no fixed payments, meaning the value of the plan might fluctuate depending on factors such as investment performance.
What Small and Midsize Businesses Need to Know About Defined Contribution Plan
Defined contribution plans provide SMB owners with more cost control and flexibility than other retirement benefits. Small companies, especially startups with limited cash flow, can decide how much to contribute to a plan in any given tax year or not make any contributions at all.