Defined contribution plan is a post-employment benefit plan in which a fixed amount or a percentage of an employee’s salary is deducted and deposited into a pension fund. The same amount is also contributed by the employer to the pension fund until the retirement of the employee.
The accounting treatment for recording defined contribution pension expense is by debiting the amount in the income statement and crediting the cash. The amount is then transferred to the pension fund. The employer’s liability is limited to the contributions until the retirement of the employee. Unlike defined benefit plan the defined contribution plan does not guarantee the performance of the fund.
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