# ASC 325-962-05: Investments—Other — Plan Accounting—Defined Contribution Pension Plans — 05 Overview and Background

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/325/962/#05-overview-and-background)

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## ASC 325-962-05: 05 Overview and Background

[Read section](https://asc.understandingaccounting.org/asc/325/962/#05-overview-and-background)

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##### [325-962-05-1](https://asc.understandingaccounting.org/asc/325/962/#325-962-05-1)

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This Subtopic provides guidance on investments for defined contribution pension plans. In particular, this Subtopic provides guidance on the reporting of investment and insurance contracts held by defined contribution pension plans.

##### [325-962-05-2](https://asc.understandingaccounting.org/asc/325/962/#325-962-05-2)

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Defined benefit plans provide participants with a determinable benefit based on a formula provided for in the plans, whereas defined contribution plans provide benefits based on amounts contributed to an employee's individual account plus or minus the following:

1.  a
    
    Forfeitures
    
2.  b
    
    Investment experience
    
3.  c
    
    Administrative expenses.

##### [325-962-05-3](https://asc.understandingaccounting.org/asc/325/962/#325-962-05-3)

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The Internal Revenue Code generally requires that all investment experience under defined contribution plans be allocated to individual account balances.

##### [325-962-05-4](https://asc.understandingaccounting.org/asc/325/962/#325-962-05-4)

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A [defined contribution plan](https://asc.understandingaccounting.org/glossary/d/#defined-contribution-plan "A plan that provides an individual account for each participant and provides benefits that are based on all of the following: amounts contributed to the participant's account by the employer or employee; investment experience; and any forfeitures allocated to the account, less any administrative expenses charged to the plan. Defined contribution health and welfare plans—Defined contribution health and welfare plans maintain an individual account for each plan participant. They have terms that specify the means of determining the contributions to participants' accounts, rather than the amount of benefits the participants are to receive. The benefits a plan participant will receive are limited to the amount contributed to the participant's account, investment experience, expenses, and any forfeitures allocated to the participant's account. These plans also include flexible spending arrangements. Defined contribution postretirement plan—A plan that provides postretirement benefits in return for services rendered, provides an individual account for each plan participant, and specifies how contributions to the individual's account are to be determined rather than specifies the amount of benefits the individual is to receive. Under a defined contribution postretirement plan, the benefits a plan participant will receive depend solely on the amount contributed to the plan participant's account, the returns earned on investments of those contributions, and the forfeitures of other plan participants' benefits that may be allocated to that plan participant's account.") provides for participant-directed investment programs if it allows participants to choose among various investment alternatives. The available alternatives are usually pooled fund vehicles, such as registered investment companies or commingled funds of banks, that provide varying kinds of investments—for example, equity funds and fixed income funds. The participant may select among the various available alternatives and periodically change that selection.