A defined contribution plan is a plan in which the employer makes a specific annual payment to the employee's pension account. Benefits are largely based on the amount contributed; however, they are also affected by income, expenses, gains, and losses. It is a company retirement plan, such as a 401(k) or 403(b) in which the amount contributed is fixed, but the benefit is not.
A defined-contribution plan qualifies as a tax-deferred retirement plan if the plan is set up in accordance with Employee Retirement Income Security Act (ERISA) standards. Among other requirements, the Employee Retirement Income Security Act requires the plan sponsor to comply with certain reporting and disclosure requirements for the benefit of plan participants.
