Defined Contribution Plan: What You Need to Know

D The employer’s obligation is limited to fixed amounts that it agrees to contribute to the fund.

This is the defining characteristic of a defined contribution plan. Here's why the other options are incorrect:

• A Benefits received by the employee are usually determined based on a benefit formula. This is true for a defined benefit plan, not a defined contribution plan.* B Discounting is not required for contributions expected to be settled 12 months after the end of the period. While this statement might be true in some accounting contexts, it's not a defining feature of a defined contribution plan.* C The investment returns on the contributions made to the plan belong to the employer. This is incorrect. The investment returns belong to the employee in a defined contribution plan.