HMO Health Insurance

Q: What is a defined contribution retirement plan?  

A defined contribution pension plan is an individual account plan. Annual contributions to a participant’s account are based on the formula contained in the plan. These are generally a mix of employer and employee pre-tax contributions. Retirement benefits are based on the value of the accumulation in the account. Employees direct where the money in the account is to be invested and thereby bear the investment risk. Investment performance directly affects the value of retirement benefits. The employer’s commitment is to make annual contributions, not to provide a level of benefits. The Pension Benefit Guaranty Corporation (PBGC) does not guarantee benefits for these plans. Examples of Defined Contribution plans include: 401(k), Profit-Sharing Plan, and Employee Stock Ownership Plans (ESOP).

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