Defined Contribution Pension Plan
What Does Defined Contribution Pension Plan Mean?
A defined contribution pension plan is a retirement plan in which the employer makes specific contributions at regular intervals, typically monthly or annually. However, when the employee retires, the amount they can withdraw is not fixed but depends on the performance of the underlying investments. In the context of insurance, defined contribution pension plans are often paired with life insurance policies to aid in retirement planning.
Insuranceopedia Explains Defined Contribution Pension Plan
Defined contribution pension plans can be an effective way to generate income during retirement. However, issues may arise if the investments perform poorly, particularly during a stock market crash or recession. Since defined contribution plans are structured so that employees typically control the investments, the responsibility for their success falls on the employee, not the pension provider. Many companies view this as an advantage. Additionally, employers appreciate these plans for their predictable, gradual contribution requirements.
