What type of plan sets aside a predetermined amount for each employee's benefit?

A defined-contribution plan is designed to set aside a predetermined amount of money for each employee's benefit, often based on contributions from both the employee and the employer. In this type of plan, the contributions are specified in advance, which provides a clear structure for funding retirement benefits. The total amount available to the employee at retirement will depend on the amount contributed and the investment performance of those contributions over time.

This is distinctly different from defined-benefit plans, where the employer guarantees a specific payout at retirement, based on salary and years of service, rather than making fixed contributions. Incentive plans typically focus on performance bonuses or rewards tied to specific achievements, and health plans are structured around providing medical coverage rather than retirement savings. Thus, the essence of a defined-contribution plan lies in its commitment to allocate funds to individual accounts for employees, emphasizing their active role in retirement savings.