What is Defined contribution plan?
In short
In a defined contribution plan, such as a 401(k) plan, the employer contributes a specified amount to each employee's individual account, and the retirement benefit depends on the contributions and investment returns.
Key takeaways
- The employer's expense is the contribution required for the period.
- A liability arises only for required contributions not yet paid.
- Employees, not the employer, bear the investment risk.
Where it's tested
BAR: Employee Benefit Plan Accounting — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
For a defined contribution plan, an employer's annual pension expense is generally: