Defined Contribution Plan

A type of retirement plan where a specified amount of money is contributed to a fund by an employer, employee, or both. A 401k is the most common example of a defined contribution plan. In most instances, the value of the employee’s interest in the account is immediately known and can be easily divided in a divorce. To avoid tax penalties, it is usually best to “divide” the account via a tradeoff, i.e., where possible, let the employee spouse keep the account, and in exchange, the non-employee spouse gets a larger share of another asset. Though rare, some defined contribution plans may not be vested; in that case, if they are divided, the division may need to discount the probability that the account does not vest or that the employee dies before reaching retirement age.