Employee Contribution Plan

AAA

DEFINITION of 'Employee Contribution Plan'

A company-sponsored retirement plan where employees may elect to have a portion of each paycheck deposited into a retirement account owned by the employee and held in his or her name. Employee contribution plans are subject to annual contribution limits imposed by the federal government, but often have tax benefits such as deferred taxes on investment gains and the ability to contribute pre-tax income. Employees always own 100% of the contributions they make. Some companies match employee contributions up to a specified limit, but the employee may not own the entire matching contribution until it fully vests after several years of continued employment.

INVESTOPEDIA EXPLAINS 'Employee Contribution Plan'

Defined contribution plans such as 401(k)s are a type of employee contribution plan. Unlike a defined benefit plan, where the employer pays the employee a predetermined amount of benefits during retirement, a defined contribution plan's payout is based on how much money the employee contributes, whether the employer matches a percentage of those contributions, how the employee chooses to invest the money in that plan and how those investments perform over time. Employee contribution plans shift investment risk from the employer to the employee.

RELATED TERMS
  1. Employment Agency Fees

    An employment agency works to match employers with suitable employees. ...
  2. Retirement Contribution

    A monetary contribution to a retirement plan. Retirement contributions ...
  3. Break In Service

    The loss of use of the contribution or benefit plan of the corporation ...
  4. 401(a) Plan

    A money-purchase retirement savings plan that is set up by an ...
  5. Employee Savings Plan

    A pooled investment account provided by an employer that allows ...
  6. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
Related Articles
  1. Plans The Small-Business Owner Can Establish
    Entrepreneurship

    Plans The Small-Business Owner Can Establish

  2. I am 61 years old and would like to ...
    Retirement

    I am 61 years old and would like to ...

  3. Payroll Deductions Pay Off
    Retirement

    Payroll Deductions Pay Off

  4. Beware Of Company Stock In Qualified ...
    Investing Basics

    Beware Of Company Stock In Qualified ...

comments powered by Disqus
Hot Definitions
  1. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  2. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  5. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  6. Budget Deficit

    A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer ...
Trading Center