Glossary
Defined Contribution Plan
A defined contribution plan is a retirement plan — such as a 401(k) or 403(b) — in which the contributions going in are defined, but the final benefit depends on investment performance.
Each participant owns an individual account; the employer's obligation ends with any promised contribution or match. Over the past four decades these plans have largely replaced traditional pensions in the private sector, shifting investment and longevity risk from employers to workers.
Why it matters in practice
The shift means the outcomes that pensions once handled automatically — saving enough, investing sensibly, not outliving the money — are now the participant's responsibility. Contribution rate, investment selection, fees, and behavior in downturns each become personal decisions with compounding consequences, which is much of what modern retirement planning exists to manage.
Related terms: Defined Benefit Plan · 401(k) · 403(b) · Vesting · Plan Sponsor