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Defined contribution plan

• Refers to a retirement plan that has a quantified amount to be invested each year. Depending on the plan, there may be maximum and minimum contributory dollar amounts. Also, there may be years-of-employment and income constraints. Some popular plans are the 401K and IRA plans. Here, there are no guarantees as to eventual value of plan amount or plan benefits. Poor, moderate, or better than average investment performance directly impacts the value of the account and potential benefits. Compare to Defined Benefit Plan.

• An employer pension plan with benefits based on formulas that recognize the individual s years of service and other factors such as pay.

• A pension plan in which the sponsor is responsible only for making specified contributions into the plan on behalf of qualifying participants. Related: defined benefit plan

 
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