Ace the Certified Payroll Pro Test 2025 – Payroll Masters, Your Time to Shine!

Question: 1 / 400

What does a defined contribution plan typically involve?

Guaranteed payouts upon retirement

Employer contributions based on employee performance

Employee and employer contributions to an individual account

A defined contribution plan typically involves employee and employer contributions to an individual account. This type of retirement plan means that both the employer and the employee contribute to the retirement account, with the total retirement benefit dependent on the amounts contributed and the investment performance of those contributions over time.

In this structure, the actual payout upon retirement is not guaranteed, as it would depend on the contributions made and how well the investments in the account perform. This is distinct from defined benefit plans, which promise specific payouts at retirement based on salary and years of service. The contributions can vary and are often influenced by factors such as employee choices and employer policies, providing flexibility and personalized retirement planning.

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Fixed benefits determined at employment start

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