Which of the following best defines 'defined contribution plan'?

A defined contribution plan is characterized by the fact that both employees and employers make contributions to the individual accounts set up for the employees, typically based on a percentage of the employee's salary. These contributions can vary according to how much the employee decides to contribute, as well as the employer's matching or discretionary contributions. This type of plan does not guarantee a specific payout at retirement; instead, the final amount available at retirement depends on the contributions made and the investment performance of those contributions over time.

This definition distinguishes a defined contribution plan from other types of retirement plans. For instance, a defined benefit plan guarantees a specific payout based on a formula, not linked to the contributions made by the employee. Options that describe non-employee involvement or linking payouts solely to company profits do not accurately capture the essence of a defined contribution plan, which is inherently based on employee and employer contributions.