<P> In a defined benefit (or pension) plan, benefits are calculated using a fixed formula that typically factors in final pay and service with an employer, and payments are made from a trust fund specifically dedicated to the plan . Separate accounts for each participant do not exist . </P> <P> By contrast, in a defined contribution plan, each participant has an account, and the benefit for the participant is dependent upon both the amount of money contributed into the account and the performance of the investments purchased with the funds contributed to the account . </P> <P> Some types of retirement plans, such as cash balance plans, combine features of both defined benefit and defined contribution schemes . </P> <P> According to Internal Revenue Code Section 414, a defined contribution plan is an employer - sponsored plan with an individual account for each participant . The accrued benefit from such a plan is solely attributable to contributions made into an individual account and investment gains on those funds, less any losses and expense charges . The contributions are invested (e.g., in the stock market), and the returns on the investment are credited to or deducted from the individual's account . Upon retirement, the participant's account is used to provide retirement benefits, often through the purchase of an annuity . Defined contribution plans have become more widespread over recent years and are now the dominant form of plan in the private sector . The number of defined benefit plans in the U.S. has been steadily declining, as more employers see pension funding as a financial risk they can avoid by freezing the plan and instead offering a defined contribution plan . </P>

An ira keogh plan and 401 plan are examples of