What Are Some Benefits of a Defined Contribution Plan?


Quick Answer

The benefits of a defined contribution plan include having control over the plan, the ability to transfer funds, access to equal benefits and possibly having access to greater funds during retirement, according to FinancialWeb. A defined contribution plan is a type of retirement plan often used as an alternative to a defined benefit plan.

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Full Answer

Defined contribution plans allow individuals to decide how much money they want to save for retirement and how their money is invested, as noted by FinancialWeb. Defined benefit plans don't allow for this level of control and instead rely on a pension manager to make decisions about investments. If an employee changes jobs, the funds in defined contribution plans are easy to transfer to another account, which isn't the case with defined benefit plans.

Unlike defined contribution plans, defined benefit plans don't always have equal benefits for everyone, according to FinancialWeb. Employees might have to wait until they have been with a company for 10 years before their defined benefit plans provide them with benefits, while defined contribution plans give employees access to benefits much sooner. Defined contribution plans can also reward account holders with more money for making smart investments. With defined benefit plans, account holders have a limit on how much they are allowed to receive upon retirement.

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