Defined Contribution Plans Characteristics

Defined contribution plans are retirement plans in which the employer, employee, or both make contributions on a periodic basis. The most common example is a 401(k) plan in the United States. These plans are contrasted with defined benefit plans, where the benefits are determined based on the employee's earnings history and years of service.

Under defined contribution plans, the retirement benefits depend on the investment performance of the assets in the employee's account. This raises various accounting and reporting considerations when it comes to employee compensation. Which of the following statements accurately describes a characteristic of defined contribution plans?