Defined Contribution Plans

In defined contribution plans, the contributions made by or on behalf of the employee are accumulated and paid on retirement along with such return as the fund may generate on the investments made. In defined contribution plans, the risk is usually borne entirely by the participating employee as his benefits are directly related to the accumulated contribution to his credit. If the pension or provident fund loses money in investments or earns lower than benchmark return, the employee bears the loss or opportunity loss.

In defined contribution plans, the pension amount depends on the amount accumulated to the credit of the employee. Defined contribution plans can be funded by contributions of either the employee or the employer or both.