Which of the following is an example of a defined contribution retirement plan?

• A. 401(k) plan
• B. Defined benefit plan
• C. Cash balance plan
• D. Nonqualified plan

Answer: (A)

Defined contribution plans specify how much is contributed, while the eventual retirement benefit depends on investment performance. A 401(k) plan is the classic example because contributions come from the employee (and often the employer) into individual accounts, and how much you have at retirement hinges on how those investments grow or shrink. In contrast, a defined benefit plan promises a specific retirement income calculated by a formula, with the employer bearing the investment risk. A cash balance plan is typically viewed as a defined benefit arrangement that uses individual account balances, so it isn’t a pure defined contribution plan. A nonqualified plan relates to tax qualification rather than the contribution-and-benefit structure, so it isn’t the standard illustration of a defined contribution plan.