Defined Contribution

A defined contribution plan is a type of retirement savings plan in which employees contribute a fixed amount or a percentage of their paychecks to an individual account set up for them. Employers may also choose to contribute to these accounts, sometimes matching employee contributions up to a certain percentage. The contributions are typically made on a pre-tax basis, which can reduce the employee's taxable income. The retirement benefits an employee receives from a defined contribution plan depend on the amount contributed and the performance of the investments chosen.