Plans favored by younger participants

A defined contribution plan is favored by a younger, more mobile participant, who often has sufficient discretionary income to take full advantage of a defined contribution plan's elective contribution and employer matching provisions.

A defined contribution plan allows the participant to quickly accumulate retirement income, but this feature must be viewed in light of the increased risks the participant faces under a defined contribution plan, where the ultimate benefits paid depend on the return on plan investment. This investment risk is heightened in certain types of defined contribution plans, particularly stock bonus plans or employee stock ownership plans where the investments consist primarily of the employer's stock. The lower costs of creating and maintaining a defined contribution plan make these popular, not only as secondary plans in established, larger companies, but also as primary plans among small businesses and in high-technology firms.