Defined-Contribution Plans Law and Legal Definition

Defined contribution plans does not essentially promise a specific amount during retirement. Employers or employees or both the employer and the employee contribute to these plans. The contributions made by the employer can be either mandatory or discretionary. This however, depends of the type of plan. The contributions are invested on behalf of the employee and the benefits paid to employees shall be on the basis of such contributions and any earnings for loss. A defined-contribution plan can be a profit-sharing plan, an employee stock ownership plan (ESOP), a 401(k) plan or a money-purchase pension plan. Employers are not required to make up for any loss on investments in the case of a defined-contribution plan.