HR Glossary for HR Professionals
Glossary of the most common HR terms and acronyms to assist professionals navigating the ever-growing and ever-changing world of HR terminology.
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What Is a Defined Contribution?
A defined contribution is a health plan strategy which allows businesses to allocate a set dollar amount toward employee benefits packages. In a defined contribution, businesses will cover a specified percentage of the employees benefit package, as opposed to a set dollar amount.
Who Should Utilize a Defined Contribution Health Plan Strategy?
Companies looking to lower their monthly premiums on benefits without reducing plan quality, can benefit from a defined contribution.
- In a defined benefit health plan strategy, companies must increase their budget as the premiums increase, ultimately spending more money each year. But by switching over to a defined contribution health plan model, they can remain in control of their budget.
- Under a defined contribution health plan strategy, costs don’t rise unless you decide to contribute more. Employers can also offer more options, ranging from benefits rich plans to plans with higher deductibles, reducing pressure on the employer to choose an option that fits every employee.
- Whether your employees can take the defined contribution to the individual market or use it on a private exchange, defined contributions freeze healthcare costs and allow employers to offer more options.
Who Benefits From a Defined Contribution Health Plan Strategy?
Both the employer and the employee will benefit from the defined contribution strategy.
- An employee will gain the benefit of having more options. Rather than 1-2 plan options, they will now have 4-5. More options makes for a more meaningful benefit to match any budget.
- An employer will benefit from the flexibility in spending. The budget will now be based on what they can afford to offer as opposed to the cost of the premiums.