Defined Contribution Plans – 401(k)
The main difference between the two plan types is that contributions to a Defined Contribution Plan are typically discretionary and based on government limitations. The most common type of (DC) plan is a 401(k) plan, in which the employee elects to defer a specified amount of his/her salary into the plan and bears the investment risk. As a DC plan, the amount the participant gets in retirement is based on the amount contributed to the plan and investment returns on those contributions.
Often, companies opt for a Cash Balance and 401(k) to meet their needs. These Combination Plans offer some attractive features.