Defined Contribution (DC) Pension Plan

A Defined Contribution (DC) plan is a type of employer-sponsored retirement plan in which contributions are made to an individual account for each member, and the final retirement benefit depends on the amount contributed and the investment performance of those contributions over time.

Unlike a Defined Benefit (DB) plan, a DC plan does not guarantee a specific retirement income. The investment risk and reward are assumed by the employee or plan member. The employer’s obligation is limited to making contributions as agreed under the plan terms.

Key Features of a Defined Contribution Plan

Common Contribution Types

• Employer Contributions: Often a fixed percentage of earnings (e.g., 5%)
• Employee Contributions: May be voluntary or required, and may be matched by the employer
• Matching Programs: Many employers offer contribution matching to encourage participation

Advantages for Employees

• Flexibility to choose from a range of investment options
• Full transparency of account value and growth
• Portability when changing employers

Considerations for Employers

• Simple to administer with predictable costs
• No long-term liability for providing guaranteed income
• Encourages retirement savings among employees

Summary
A Defined Contribution plan is a flexible and cost-predictable way for employers to support employee retirement savings. The plan provides structure and tax advantages, but the ultimate retirement outcome depends on contributions and investment returns. It is widely used in both the private and public sectors and is often offered alongside or as an alternative to a group RRSP.