What defines a defined contribution plan?

A defined contribution plan is characterized by the fact that both the employer and/or employee make contributions to individual accounts set up for each participant. The key aspect of these plans is that the amount contributed is specified, but the retirement benefits that participants receive depend on the performance of the investments made with those contributions. As a result, there is no guaranteed payout amount at retirement; instead, the account balance at the time of retirement reflects the total contributions plus any investment gains or losses.

The other options describe characteristics that are not associated with defined contribution plans. For instance, defining benefits based on the employer's profits relates more to profit-sharing or certain types of defined benefit plans rather than individual contributions. Additionally, contributions being taxed upon withdrawal pertains to tax treatment but isn’t a defining characteristic of defined contribution plans themselves, as this can apply to various retirement account types. Lastly, a fixed promised benefit at enrollment is a clear feature of defined benefit plans, where retirees are guaranteed a specific payout based on a formula rather than the fluctuating value of individual contributions.