Understanding Defined Contribution Plans

In the realm of employee compensation, companies often utilize various retirement plans to provide benefits to their employees. One common type of retirement plan is the defined contribution plan, where the employer contributes a specified amount or percentage of the employee's salary into a retirement account. These plans shift the investment risk to the employee and are typically less complex for companies to administer compared to defined benefit plans.

Which of the following statements accurately describes a characteristic of defined contribution plans?