What is Defined Contribution
One type of retirement plan that many companies use is a defined contribution plan. Staff members may contribute a percentage of their earnings or a set amount to an account as a way to save for retirement. This typically offers tax deferrals so that the tax on this portion of income is paid at the time of payout. The individual may be in a lower tax bracket by this time, so it can be a way to pay less tax on income.
The sponsoring company will often match a percentage of the employees’ contributions as an additional benefit of being part of the fund.