Defined contribution plan

A defined contribution plan is an arrangement under which a business pays a fixed amount into a benefit plan for employees. The funding entity's obligation to pay employees usually is discharged by its contributions to the plan. This approach limits the liability of the employer to the amount initially paid into the plan.

A more expensive approach is the defined benefit plan, under which the employer is responsible for a fixed set of benefits to employees; this can require substantially more funding.

Related Courses

Accounting for Retirement Benefits