Defined Contribution Plans

In a defined contribution plan, fixed contributions are paid into an individual account by employers and employees. Money contributed can either be from employee salary deferral or from employer contributions. The contributions are then invested, for example in the stock market, and the returns on the investment (which may be positive or negative) are credited to the individual's account.

On retirement, the member's account is used to provide retirement benefits, sometimes through the purchase of a fixed annuity * which then provides a regular income. In a defined contribution plan, investment risk and investment rewards are assumed by each individual/employee/retiree and not by the sponsor/employer.  Despite the fact that the participant in a defined contribution plan typically has control over investment decisions, the plan sponsor retains a significant degree of fiduciary responsibility over investment of plan assets, including the selection of investment options and administrative providers.

If you have questions or would like Dugan & Lopatka to help you, give us a call.

*Fixed Annuities are long-term investment vehicles designed for retirement purposes.  Gains from tax-deferred investments are taxable as ordinary income upon withdrawal.  Guarantees are based on the claims paying ability of the issuing company.  Withdrawals made prior to age 59 1/2 are subject to 10% IRS penalty tax and surrender charges may apply.