Defined Contribution Plan

Unlike a Defined Benefit Plan, a defined contribution plan does not promise a specific amount of benefits at an employee's retirement. In these plans, the employee or the employer (or both) contribute to the employee's individual account under the plan, sometimes at a set rate, such as 5 percent of earnings annually. These contributions generally are invested on the employee's behalf. The employee will ultimately receive the balance in their account, which is based on contributions plus or minus investment gains or losses on the insurance product. The value of the account will fluctuate due to the changes in the value. Examples of defined contribution plans would be insurance funded 401(k) plans, insurance funded 403(b) plans, employee stock ownership plans, and insurance funded profit-sharing plans.

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