Defined Contribution Plan - A Complete Guide

In 2020, 60% of workers participated in a defined contribution plan, such as a 401(k) or IRA. (Source: Employee Benefit Research Institute)

The COVID-19 pandemic had a significant impact on defined contribution plans, with 38% of plan sponsors making changes to their plans in 2020, such as adding a new investment option or allowing for hardship withdrawals. (Source: Willis Towers Watson)

In 2021, the average employer contribution to a 401(k) plan was 4.7% of an employee's salary, up from 3.9% in 2011. (Source: Vanguard)

As of Q4 2021, the average 401(k) account balance was $131,270, up 21% from the previous year. (Source: Fidelity Investments)

Defined Contribution Plan - A Complete Guide

Lastly, defined contribution plans accounted for $11 trillion of the $34.2 trillion in total retirement plan assets held in the United States as of Dec. 31, 2021, according to the Investment Company Institute (ICI).

Thus, defined contribution plans are retirement plans where the employer, employee, or both make regular contributions of specified amounts.

These programs typically require the employees to select investments based on their retirement goals, such as riskier but higher-return portfolios or safer but lower-return portfolios.

However, it is important to have a complete understanding of a defined contribution plan to know whether it is the right choice for you or not.

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This article will help you thereby covering the following topics:

What is a Defined Contribution Plan?
Differentiate between a Defined Contribution Plan and a Defined Benefit Plan
What are the Different Types of Defined Contribution Plans?
How does a Defined Contribution Plan Work?
Investment Options in Defined Contribution Plan
Contribution Limits of Defined Contribution Plan
What are the Advantages of a Defined Contribution Plan?
What are the Disadvantages of a Defined Contribution Plan?
Limitations of Defined Contribution Plans
Can I Cash Out My Defined Contribution Pension Plan?
Can I Take Out a Loan from My Defined Contribution Plan?
How to Determine if a Defined Contribution Plan is the Right Choice for You?
How to Save for Retirement Outside of Defined Contribution Plans?
FAQs about the Defined Contribution Plan
How can Deskera Help with Defined Contribution Plans?
Key Takeaways
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What is a Defined Contribution Plan?

A defined contribution plan is a type of retirement savings plan where both employers and employees can contribute a certain amount of money to an individual account for the employee's future retirement.

Unlike defined benefit plans, which guarantee specific retirement benefits, the benefits of a defined contribution plan are determined by the amount of money contributed and the investment returns generated by that money.

Here are some important features of a defined contribution plan:

Contribution limits: Both employers and employees can contribute a certain amount of money to the plan each year, subject to annual limits set by the government.
Tax benefits: Contributions made to a defined contribution plan are typically tax-deductible, which can reduce the amount of income tax owed by both employers and employees. Additionally, investment earnings on the plan are tax-deferred until withdrawn, allowing for greater tax-free growth.
Investment options: Employees typically have several investment options to choose from, ranging from conservative to more aggressive investments, depending on their risk tolerance and retirement goals.
Portability: Employees can typically take their retirement savings with them if they leave their job, either by rolling over the funds into another retirement account or cashing out the balance (which may be subject to taxes and penalties).
Vesting: Employers may require employees to work for a certain number of years before becoming vested in the plan, which means they are entitled to the full value of their employer's contributions if they leave the company.
Retirement income: Upon retirement, employees can typically choose to withdraw their funds as a lump sum or receive regular payments from the plan in the form of an annuity.

Common types of defined contribution plans include 401(k) plans for private-sector employees, 403(b) plans for non-profit employees, and Individual Retirement Accounts (IRAs) for individuals. These plans are an important tool for individuals and employers to save for retirement and provide employees with a greater sense of financial security for their future.

Differentiate between a Defined Contribution Plan and a Defined Benefit Plan

Defined contribution plans and defined benefit plans are two types of retirement savings plans with significant differences.

In a defined contribution plan, the employer and/or employee contribute a certain amount of money to an individual account for the employee's retirement, and the retirement benefits are determined by the contributions made and the investment returns generated by those contributions. The employer is not responsible for guaranteeing a specific retirement benefit amount. Examples of defined contribution plans include 401(k) plans and IRAs.

In contrast, a defined benefit plan is a retirement plan in which the employer promises to pay a specific retirement benefit amount to the employee upon retirement. The benefit amount is typically based on a formula that takes into account the employee's salary, years of service, and other factors. In a defined benefit plan, the employer is responsible for ensuring that the promised benefit is available when the employee retires.

Here are some key differences between defined contribution plans and defined benefit plans:

Retirement benefits: In a defined contribution plan, retirement benefits are determined by the contributions made and the investment returns generated by those contributions. In a defined benefit plan, retirement benefits are based on a formula that takes into account the employee's salary and years of service.
Employer responsibility: In a defined contribution plan, the employer is not responsible for guaranteeing a specific retirement benefit amount. In a defined benefit plan, the employer is responsible for ensuring that the promised benefit is available when the employee retires.
Investment risk: In a defined contribution plan, the employee bears the investment risk. The value of the retirement benefit depends on the performance of the investments in the individual account. In a defined benefit plan, the employer bears the investment risk. The employer is responsible for ensuring that the promised benefit amount is available regardless of the investment performance.
Portability: Defined contribution plans are more portable than defined benefit plans. Employees can take their individual accounts with them if they change jobs, whereas defined benefit plans are typically tied to the employer.
Funding: Defined contribution plans are typically funded by employee and employer contributions. In a defined benefit plan, the employer is responsible for funding the promised benefit amount.

Overall, defined contribution plans and defined benefit plans offer different advantages and disadvantages to both employers and employees. Defined contribution plans offer more flexibility and portability, while defined benefit plans offer more security and predictability.

What are the Different Types of Defined Contribution Plans?

There are several types of defined contribution plans, each with its own specific rules and regulations. The most common types of defined contribution plans include:

401(k) plans: A 401(k) plan is a retirement savings plan offered by employers to their employees. Employees can contribute a portion of their salary to the plan, and employers can choose to match a portion of those contributions.
403(b) plans: A 403(b) plan is similar to a 401(k) plan, but it is only available to employees of certain tax-exempt organizations, such as schools and hospitals.
Simplified Employee Pension (SEP) plans: A SEP plan is a retirement savings plan that allows employers to make contributions to their employees' individual retirement accounts (IRAs).
Simple IRA plans: A Simple IRA plan is a retirement savings plan that allows both employers and employees to make contributions. Employees can contribute a portion of their salary to the plan, and employers can choose to match a portion of those contributions.
Individual Retirement Accounts (IRAs): An IRA is a retirement savings account that individuals can set up on their own. Contributions to an IRA are made with after-tax dollars, and investment earnings grow tax-deferred until withdrawal.
Thrift Savings Plan (TSP): A TSP enables both employers and employees to contribute and is accessible to both federal government employees and active military personnel. There are Roth accounts accessible, but they often have fewer investing possibilities than other defined contribution plans.
Profit Sharing Plans: Only employer payments, often from business earnings, are used to fund these schemes. Each employee typically receives a portion of earnings, though contribution levels may vary depending on how profitable a company is overall.
Money Purchase Plans / 401(a): Similar to profit-sharing plans, money purchase plans work by making a fixed annual payment to each employee's account from the firm, regardless of the year's revenues and profitability. Workers could be obliged to put aside a certain amount of their pay. 401(a) plans are money purchase plans for government agencies, public educational institutions, and non-profits.

Note:

401(k), 403(b), most 457(b) plans and TSPs. In 2022, plan participants can contribute up to $20,500 per year if they’re under 50 ($22,500 in 2023). Those over 50 can contribute an additional $6,500 ($7,500 in 2023). Employers may contribute up to 25% of an employee’s compensation, but total employee and employer contributions cannot exceed $61,000 ($66,000 in 2023) or $67,500 ($73,500 in 2023) if they are 50 or older.
Profit-sharing plans: Employers can contribute up to the lesser of 25% of compensation or $61,000 ($66,000 in 2023).
Money purchase plans/401(a) plans: Employers and employees can contribute up to a total of 25% of an employee’s net compensation or $61,000 ($66,000 in 2023), whichever is less.
SIMPLE plans: Participants can contribute up to $14,000 in 2022 ($15,500 in 2023). Those 50 or older can contribute an additional $3,000 ($3,500 in 2023).
SEP IRAs: SEPs don’t allow employee contributions, but employers can add up to the lesser of $61,000 ($66,000 in 2023) or 25% of an employee’s salary.

Each type of defined contribution plan has its own rules and regulations, as well as unique advantages and disadvantages. Employers and employees should carefully consider their options and consult with a financial professional before choosing a plan.

How does a Defined Contribution Plan Work?

A defined contribution plan is a type of retirement savings plan in which both the employer and the employee make contributions to an individual account for the employee.

The retirement benefit amount is based on the contributions made and the investment returns generated by those contributions. Here's how a defined contribution plan works:

The employee enrolls in the plan: The employee decides to participate in the plan and elects to contribute a percentage of their salary to the plan.
The employer makes contributions: The employer may also make contributions to the plan on behalf of the employee. The employer can contribute a fixed amount or a percentage of the employee's salary up to certain limits.
The contributions are invested: The contributions made to the plan are invested in various assets such as stocks, bonds, mutual funds, and other investment vehicles. The employee may have some control over how the contributions are invested, depending on the specific plan.
Investment earnings and losses: The value of the account fluctuates based on the investment performance of the underlying assets. The employee bears the investment risk, meaning they may earn a higher or lower return depending on the performance of the investments.
Vesting: The employee becomes vested in their contributions and the employer's contributions over time, which means they have a legal right to the money in their account. Vesting schedules vary by plan.
Withdrawal and distribution: The employee can typically withdraw funds from their account once they reach retirement age or under certain circumstances such as hardship. The withdrawals are subject to income taxes and penalties if taken before age 59 1/2.

Overall, a defined contribution plan allows employees to save for retirement with contributions from both the employer and the employee. The employee bears the investment risk but also has some control over how the contributions are invested.

The retirement benefit amount is based on the contributions made and the investment returns generated by those contributions rather than a specific benefit formula.

Investment Options in Defined Contribution Plan

A defined contribution plan typically offers several investment options to plan participants to choose from. These investment options can vary depending on the plan sponsor, but some common options include the following:

Mutual Funds: A mutual fund is a professionally managed investment portfolio that pools money from multiple investors to purchase a variety of assets, such as stocks, bonds, and other securities. Mutual funds are a popular investment option in defined contribution plans because they offer diversification and professional management.
Target-Date Funds: A target-date fund is a type of mutual fund that is designed to automatically adjust its asset allocation as the participant approaches retirement. Target-date funds typically invest more aggressively when the participant is young and gradually shift to more conservative investments as the participant nears retirement.
Index Funds: An index fund is a type of mutual fund that seeks to track the performance of a specific market index, such as the S&P 500. Index funds typically have lower fees than actively managed funds, making them a popular option in defined contribution plans.
Company Stock: Some defined contribution plans may offer company stock as an investment option. While investing in company stock can be risky, it can also provide a sense of loyalty and ownership for employees.
Bond Funds: Bond funds invest in fixed-income securities, such as government or corporate bonds. Bond funds typically offer lower returns than equity funds, but they also offer lower risk and can help diversify a participant's portfolio.

Note that the investment options available in a defined contribution plan can vary based on the plan sponsor's preferences and investment objectives. Participants should carefully review their investment options and consider factors such as risk tolerance, investment goals, and fees before making investment decisions.

Contribution Limits of Defined Contribution Plan

The basic employee contribution limit for 2022 is $20,500.This limit includes all elective employee salary deferrals as well as any after-tax contributions made to a designated Roth account within your 401(k) or a Roth 401(k) plan.

The same contribution limits apply to 403(b) plans and most 457 plans, as well as to the federal government’s Thrift Savings Plan.

If you have multiple 401(k) accounts, your total contributions to all of them- both traditional and Roth, cannot exceed that $20,500 limit. Any contributions you make to other types of retirement accounts, such as IRAs, do not affect your 401(k) contribution limit.

If you are age 50 or older, you can kick in an extra $6,500 catch-up contribution for 2022 for a total of $27,000.

The employee contribution, as described above, is $22,500 for 2023. The catch-up contribution rises to $7,500.That's a total of $30,000.

A big benefit of participating in a 401(k) plan is that your employer may contribute to it on your behalf, as well. Many employers match employee contributions by adding, for example, 50 cents or $1 for every dollar the employee contributes.

Employers can also make elective contributions regardless of how much or little the employee contributes, up to certain limits. The general limit on total employer and employee contributions for 2022 is $61,000 or 100% of employee compensation, whichever is less. For workers aged 50 and up, the base limit is $67,500, which includes the $6,500 catch-up contribution.

The limit on total employer and employee contributions for 2023 is $66,000. With the $7,500 catch-up contribution, that limit becomes $73,500.

Comparing the 2022 and 2023 Contribution Limits

Defined Contribution Plan Limits	2022	2023	Change
Maximum employee elective deferral	$20,500	$22,500	+$2,000
Employee catch-up contribution (if age 50 or older by year end)	$6,500	$7,500	+$1,000
Defined contribution maximum limit, all sources	$61,000	$66,000	+$5,000
Defined contribution maximum limit (if age 50 or older by year end) ; maximum contribution all sources, plus catch-up	$67,500	$73,500	+$6,000
Employee compensation limit for calculating contributions	$305,000	$330,000	+$25,000
Key employees’ compensation threshold for nondiscrimination testing	$200,000	$215,000	+$15,000
Highly compensated employees’ threshold for nondiscrimination testing	$135,000	$150,000	+$15,000

What are the Advantages of a Defined Contribution Plan?

Defined contribution plans have several advantages for both employers and employees. Here are some of the key advantages of defined contribution plans:

Flexibility

Defined contribution plans offer flexibility for both employers and employees in terms of contribution amounts, investment options, and retirement age. This can make it easier for employees to tailor their retirement savings to their individual needs.

Portability

Defined contribution plans are portable, meaning that employees can take their retirement savings with them if they leave their current employer. This can provide employees with greater control over their retirement savings and reduce the risk of losing retirement benefits if they switch jobs.

Tax Benefits

Defined contribution plans offer tax benefits to both employers and employees. Employer contributions to the plan are tax-deductible, and employee contributions are made with pre-tax dollars, reducing their taxable income. Additionally, investment earnings grow tax-deferred until withdrawal, providing potential tax savings over the long term.

Employee Engagement

Defined contribution plans can be an effective way to engage employees in their retirement savings and encourage them to save more for their future. Employees can monitor their account balances and investment performance, which can help motivate them to save more and make better investment decisions.

Reduced Employer Risk

Defined contribution plans can help reduce employer risk and liability, as the retirement benefit is based on the number of contributions and investment returns generated by those contributions rather than a specific benefit formula. This can make it easier for employers to manage their retirement benefits costs and reduce the risk of underfunding the plan.

What are the Disadvantages of a Defined Contribution Plan?

While defined contribution plans offer several advantages, they also have some disadvantages to consider. Here are some of the key disadvantages of defined contribution plans:

Investment Risk

With defined contribution plans, employees bear the investment risk, meaning that their retirement benefits are dependent on the performance of their investment choices. If the investments underperform, employees may not have sufficient retirement savings.

Lack of Guaranteed Income

Unlike defined benefit plans, which provide a guaranteed retirement income for life, defined contribution plans do not guarantee a specific level of retirement income. The retirement benefit amount is based on the number of contributions and investment returns generated by those contributions.

High Fees

Defined contribution plans can have high fees, including investment fees, administrative fees, and other expenses. These fees can reduce investment returns and erode retirement savings over time.

Limited Investment Options

Defined contribution plans may offer limited investment options, which can make it difficult for employees to diversify their portfolios and manage risk.

Inadequate Savings

Some employees may not save enough for retirement through their defined contribution plan, either due to a lack of knowledge or a lack of financial resources.

Complexity

Defined contribution plans can be complex and confusing, with many rules and regulations to follow. This can make it difficult for employees to understand their retirement savings and make informed decisions.

Limitations of Defined Contribution Plans

Defined contribution plans have certain limitations that may affect their effectiveness in providing retirement benefits. Here are some of the key limitations of defined contribution plans:

Inadequate savings: Defined contribution plans may not provide sufficient retirement savings for some employees, especially those who don't save enough or have limited investment knowledge. This can result in employees not having enough money for retirement.
Investment risk: The investment risk in defined contribution plans falls on the employee, who is responsible for selecting investment options and managing their investment portfolio. Poor investment choices or market volatility can negatively impact the retirement savings of an employee.
Complexity: Defined contribution plans can be complex, with many rules and regulations to follow. This can make it difficult for employees to understand their retirement savings and make informed decisions.
Limited investment options: Defined contribution plans may offer limited investment options, which can make it difficult for employees to diversify their portfolios and manage risk.
High fees: Defined contribution plans can have high fees, including investment fees, administrative fees, and other expenses. These fees can reduce investment returns and erode retirement savings over time.
Lack of guaranteed income: Unlike defined benefit plans, defined contribution plans do not provide a guaranteed income stream during retirement. The retirement benefit amount is based on the number of contributions and investment returns generated by those contributions.

Overall, while defined contribution plans offer several advantages, they also have some limitations that may affect their effectiveness in providing retirement benefits. Employers and employees should carefully consider these limitations when evaluating defined contribution plans and consider ways to address them to maximize retirement benefits.

Can I Cash Out My Defined Contribution Pension Plan?

In general, you can cash out your defined contribution plan when you leave your job or retire. However, there may be tax implications and penalties associated with cashing out your plan before retirement age.

If you are under age 59 1/2 and cash out your defined contribution plan, you may be subject to a 10% early withdrawal penalty in addition to income taxes on the amount withdrawn. Additionally, cashing out your plan means you will no longer have the retirement savings to support you in retirement.

It's generally recommended that you avoid cashing out your defined contribution plan and instead roll it over into another qualified retirement account, such as an Individual Retirement Account (IRA) or a new employer's 401(k) plan. Rolling over your defined contribution plan can help you avoid taxes and penalties and preserve your retirement savings.

However, if you do decide to cash out your defined contribution plan, it's important to consult with a financial advisor or tax professional to fully understand the tax implications and potential penalties associated with the decision.

Can I Take Out a Loan from My Defined Contribution Plan?

Some defined contribution plans, such as 401(k) plans, allow participants to take out a loan from their account balance. However, there may be restrictions and fees associated with taking out a loan.

Generally, the loan, like a 401(k) loan must be repaid with interest within a certain time frame, or it may be considered a distribution and subject to taxes and penalties. It's important to carefully consider the implications of taking out a loan from your defined contribution plan before doing so.

How to Determine if a Defined Contribution Plan is the Right Choice for You?

To determine if a defined contribution plan is the right choice for you, consider the following:

Employer offerings: If your employer offers a defined contribution plan, it may be the best choice for you as you can take advantage of any matching contributions or other benefits offered.
Retirement goals: If your retirement goals include having control over your investments and flexibility with your contributions, a defined contribution plan may be the right choice for you.
Investment knowledge: If you have knowledge and experience with investing, a defined contribution plan can allow you to take control of your investments and potentially maximize your returns.
Risk tolerance: If you have a high tolerance for investment risk, a defined contribution plan can allow you to choose more aggressive investment options, potentially leading to higher returns.
Tax considerations: Consider the tax implications of a defined contribution plan, including the tax-deferred growth of your contributions and the potential tax advantages of contributions made with pre-tax income.
Financial situation: Consider your financial situation, including your income, expenses, and debt, and determine if you can afford to contribute to a defined contribution plan.

Overall, the right choice for you will depend on your individual circumstances and financial goals. Consulting with a financial advisor can help you determine if a defined contribution plan is the right choice for you.

How to Save for Retirement Outside of Defined Contribution Plans?

If you are looking to save for retirement outside of defined contribution plans, there are several options available:

Taxable investment accounts: You can open a taxable investment account and invest in a diversified portfolio of stocks, bonds, and other assets. While these accounts do not offer the same tax benefits as retirement accounts, they provide more flexibility with contributions and withdrawals.
Real estate investments: Investing in rental properties or real estate investment trusts (REITs) can provide passive income and potential capital gains, which can be used to fund your retirement.
Annuities: An annuity is a financial product that provides a guaranteed stream of income in retirement. You can purchase an annuity with a lump sum or by making periodic payments over time.
Health savings accounts (HSAs): If you have a high-deductible health plan, you can contribute to an HSA and use the funds to pay for qualified medical expenses tax-free. After age 65, you can withdraw funds for non-medical expenses penalty-free, making it a potential retirement savings vehicle.

It's important to consult with a financial advisor to determine the best retirement savings strategy for your individual circumstances and goals.

FAQs about the Defined Contribution Plan

What is a defined contribution plan?

A defined contribution plan is a retirement plan that allows employees and employers to contribute a certain amount of money to an individual account that is invested for retirement savings.

Can I take out a loan from my defined contribution plan?

Some defined contribution plans, such as 401(k) plans, allow participants to take out a loan from their account balance. However, there may be restrictions and fees associated with taking out a loan.

What happens to my defined contribution plan if I leave my job?

If you leave your job, you can generally roll over your defined contribution plan into another qualified retirement account, such as an IRA or a new employer's 401(k) plan.

Can I withdraw money from my defined contribution plan before retirement?

You can withdraw money from your defined contribution plan before retirement, but you may be subject to taxes and penalties if you withdraw before age 59 1/2.

What happens if I don't contribute enough to my defined contribution plan?

If you don't contribute enough to your defined contribution plan, you may not have enough money saved for retirement.

Can I contribute to both a defined benefit plan and a defined contribution plan?

Yes, you can contribute to both a defined benefit plan and a defined contribution plan, but the contribution limits may vary.

How is the investment risk managed in a defined contribution plan?

In a defined contribution plan, the investment risk is managed by the plan participant, who chooses the investment options and manages their portfolio.

Can I make catch-up contributions to my defined contribution plan?

Yes, individuals aged 50 and over can make catch-up contributions to their defined contribution plan.

Can I make after-tax contributions to my defined contribution plan?

Some defined contribution plans allow after-tax contributions, but the rules and limits vary by plan.

What happens to my defined contribution plan if my employer goes out of business?

If your employer goes out of business, your defined contribution plan may be terminated or transferred to another plan.

Can I contribute to a defined contribution plan if I am self-employed?

Yes, self-employed individuals can contribute to a defined contribution plan, such as a Solo 401(k) or a Simplified Employee Pension (SEP) plan.

Can I contribute to a defined contribution plan and a Roth IRA?

Yes, you can contribute to both a defined contribution plan and a Roth IRA, but the contribution limits may vary.

Can I convert my traditional defined contribution plan to a Roth account?

Yes, some defined contribution plans allow for the conversion of traditional account balances to a Roth account, but there may be tax implications.

Can I contribute to a defined contribution plan if I am not a US citizen?

Non-US citizens who earn US-source income may be eligible to participate in a defined contribution plan, but the rules and requirements may vary.

Can I roll over my defined contribution plan into a non-qualified account?

No, you cannot roll over your defined contribution plan into a non-qualified account. You can only roll over to other qualified accounts, such as an IRA or another employer's retirement plan. Non-qualified accounts, such as regular brokerage accounts or savings accounts, do not meet the requirements for accepting rollovers from a defined contribution plan.

How can Deskera Help with Defined Contribution Plans?

Deskera offers comprehensive HR management software, i.e., Deskera People, that can help with managing defined benefit plans. Some of the features of Deskera People that can assist with defined benefit plans include:

Benefit tracking: Deskera HR management software allows employers to track and manage employee benefits, including defined contribution plans.
Reporting: Deskera HR management software provides powerful reporting capabilities that can help employers keep track of plan funding status, plan expenses, and employee participation.
Compliance: Deskera HR management software can help ensure that employers are in compliance with applicable laws and regulations governing defined contribution plans.
Employee self-service: Deskera HR management software offers a self-service portal that allows employees to view their benefits information, including their defined contribution plan benefits.
Integration: Deskera HR management software can integrate with payroll systems, making it easy to track and manage employee benefits alongside other HR functions.

Overall, Deskera People can help streamline the administration of defined contribution plans, making it easier for employers to manage these complex retirement plans and provide employees with accurate and up-to-date information about their benefits.

Streamline the Administration of Defined Contribution Plans

Ensure that Your Employees Get Up-to-date Information about their Benefits

Try Deskera People for Free Now

Key Takeaways

A defined contribution plan is a retirement plan that allows employees and employers to contribute a certain amount of money to an individual account that is invested for retirement savings.

Defined contribution plans are becoming increasingly popular among employers as a way to provide retirement benefits to their employees while shifting some of the financial risk and responsibility to the employee.

401(k) plans are the most common type of defined contribution plan, but there are also other types of plans, such as 403(b) plans and individual retirement accounts (IRAs).

Participants in a defined contribution plan typically have the ability to choose from a variety of investment options, such as mutual funds, target-date funds, index funds, and company stock.

Employers may offer a matching contribution to encourage employee participation in the plan, but this is not required.

Participants can typically take loans or hardship withdrawals from their accounts, but these options can have negative consequences and should be used carefully.

Participants should regularly review their investment options and consider factors such as risk tolerance, investment goals, and fees before making investment decisions.

Overall, defined contribution plans can be a valuable tool for employees to save for retirement, but it's important to carefully consider the investment options and other plan features before making decisions.

Employers should also carefully design and manage their defined contribution plans to ensure they are meeting the needs of their employees and complying with regulatory requirements.