Defined contribution plan belongs in a plan-specific employer file. A defined contribution plan specifies the employer's contribution instead of promising a stated retirement benefit. The employer records cost from the contribution formula and a payable or prepaid amount from contributions due versus paid.
Apply it
If covered pay is $8 million and the plan requires a five-percent match, current cost is $400,000. Paying $370,000 leaves a $30,000 payable when no other timing rule applies.
Common mistake
Do not assume that a defined contribution plan creates a PBO and funded-status liability. The employer normally recognizes required contribution cost and an unpaid contribution, subject to the plan terms and applicable guidance. That error would invent actuarial obligations that the contribution-based accounting model does not require.
Keep the boundary clear
Do not build a PBO or sponsor funded-status schedule for a contribution-only promise. A hybrid arrangement needs a substance analysis rather than its chosen name.
Authority
Read ASC 715-70-05-2 for the employer's obligation in a defined contribution plan.
Put the concept to work
Apply this concept
- Explain and apply defined contribution plan within a reconciled employer benefit-plan workpaper using supplied authoritative and actuarial facts.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Employee benefit arrangement — Apply
To apply this concept: Required. This prior concept supplies the plan route or reconciled input required here.