Salary Reduction Contribution

DEFINITION of 'Salary Reduction Contribution'

A cash- or deferred-contribution arrangement of an employer-sponsored retirement plan, under which participants can choose to set aside part of their pre-tax compensation as a contribution to the plan.

BREAKING DOWN 'Salary Reduction Contribution'

This kind of contribution is also called an elective-deferral contribution. Employees defer the tax on the money until it is distributed to them.