Definition of "Defined Contribution Plan"

A pension plan that specifies the contributions made by employees and, in many cases, the employer on behalf of each plan participant. These funds accumulate for each plan participant until retirement. At retirement, funds are distributed either as a lump sum or monthly annuity. Benefits are based on the amount of contributions plus earnings.

A type of retirement plan where the plan specifies the amount of the contribution that will be made by the employer. The amount of the retirement accumulation is determined based on the plans investment performance.