Defined-Contribution Plans
Most newly installed qualified retirement plans are defined-contribution plans. In a defined-contribution plan, the contribution rate is fixed, but the actual retirement benefit varies. For example, both the employer and employee may each contribute 6 percent of the employee’s pay into the plan. The actual retirement benefit, however, depends on the age of entry into the plan, the contribution rate, the types of investments and investment returns, and the age of retirement. As such, retirement benefits can only be estimated.
Money Purchase Plan
One type of defined-contribution plan is a money purchase plan. A money purchase plan is a plan in which each participant has an individual account, and the employer’s contribution ...
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