Chartered Retirement Planning Counselor (CRPC) Practice Exam 2025 - Free CRPC Practice Questions and Study Guide

Defined contribution plans are characterized by the fact that the benefits received upon retirement are directly linked to the contributions made during the employee's working years and the performance of the investments chosen. In these plans, the employer, employee, or both make contributions into individual accounts set up for the employees. The total amount available at retirement is determined by the total contributions made plus any investment gains or losses that occur over time.

This underscores a key feature of defined contribution plans: the retirement benefit is not predetermined and can vary significantly based on market conditions and the choices made by the employee regarding their investment options. Thus, participants bear the investment risk and can influence the size of their retirement assets through their saving and investment decisions.

In contrast, some other characteristics of retirement plans include specified benefits upon retirement, which is typical of defined benefit plans, and guaranteed returns, which can also be linked to specific types of savings accounts or insurance products, rather than defined contribution plans. The contribution amounts in defined contribution plans, while specified by the employer or participant, can vary from year to year and are often set as a percentage of salary, unlike defined benefit plans where the end benefit is predetermined.