In a Defined Contribution Plan, both the sponsor/employer and employee can make contributions to the plan, which offers tax incentives to both parties. The sponsor/employer is not taxed on the amount contributed, and generally the employee does not pay taxes on the amount either, until he/she begins taking distributions. The balance on these accounts depends on the market value at any given time.
Money Purchase – providing for guaranteed contributions
Non-qualified – for select group of management and key executives
Unlike a Defined Contribution Plan, only the employer will contribute to a Defined Benefit Plan. Benefits are based on the employee’s salary and years of service. These plans, much like the Defined Contribution plans, have the same tax incentives offered to both the sponsor/employer and employee.
Defined Benefit (traditional) – providing guaranteed benefits for participants based on their salary and years of service
Cash balance – a defined benefit plan providing for guaranteed benefits that is structured to resemble a defined contribution plan
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Profit Sharing Plans are Defined Contribution plans with discretionary contributions. The plan sponsor determines the contributions, and a contribution may not be required every year.
Profit Sharing (traditional including integrated plans) – providing for discretionary employer contributions