What is one main purpose of a defined contribution plan?

A defined contribution plan primarily aims to allow employees to contribute to their retirement savings based on their income levels, fostering flexibility in how much they can save. This plan does not guarantee a specific benefit amount at retirement; instead, the final benefit is determined by the contributions made and the investment performance over time.

The flexibility in contributions makes it easier for employees to adjust their savings according to their financial situations, whether they want to save more during higher earning years or less during periods of lower income. This approach empowers employees to take control of their retirement savings and adapt their plans as their financial circumstances change.

The other choices represent concepts associated with defined benefit plans or are not accurate descriptions of the nature of defined contribution plans. For instance, defined contribution plans do not guarantee benefits without risk or provide a fixed monthly income at retirement, which are characteristics of defined benefit plans. Additionally, while employer contributions can occur in defined contribution plans, they are not required, making the idea of no employer contributions misleading in this context.