Define: Defined Contribution Plan

UK Accounting Glossary

Definition: Defined Contribution Plan



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Full Definition of Defined Contribution Plan


A defined contribution plan is a type of qualified retirement plan, meaning it receives favourable tax treatment. A defined contribution plan requires the employer, on behalf of the employee, to make a specified, fixed contribution to the plan. The total dollar contribution made to the defined contribution plan is based on a percentage of the employee’s compensation. The money is invested by the employee according to the options offered by the defined contribution plan. Unlike a conventional defined benefit plan, the benefits of a defined contribution plan are not fixed or predetermined. At retirement, the employee’s benefit depends on the performance of the investment account and the amounts contributed to the defined contribution plan. A 401(k) plan is one type of defined contribution plan. One advantage of a defined contribution plan is that, for employees who change jobs, it is often possible to take the accumulated retirement assets with them.


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Definition Sources


Definitions for Defined Contribution Plan are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • BusinessDictionary.com
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 7th February 2020.