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What is a defined contribution plan?

A defined contribution plan is a retirement plan whereby the employer, employee or both make contributions towards an individual account established on behalf of the employee. Such funds can be invested, and upon retirement, the employee will receive either a lump sum payment of the amount held in the account or such balance will be converted to a monthly annuity payable for the lifetime of the employee. Examples of some defined contribution plans are as follows:

401(k) Plan
Savings and Investment Plan
Profit Sharing Plan
Money Purchase Pension Plan
Employee Stock Ownership Plan (ESOP)
Tax Reduction Act Stock Ownership Plan (TRASOP)