CONTRIBUTORY PLAN Meaning and
Definition
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A contributory plan is a type of retirement savings plan in which both the employer and the employee make regular contributions to an individual retirement account (IRA) or a pension fund. In this plan, the employee is required to contribute a certain percentage of their salary, which is deducted directly from their paycheck, while the employer also contributes a matching amount.
The main purpose of a contributory plan is to allow employees to accumulate funds for retirement over time, with the added benefit of having the employer contribute to their retirement savings as well. These plans are typically established by employers as part of their employee benefits package, offering a way for employees to actively participate in saving for their future.
Contributory plans can take different forms, including 401(k) plans and profit-sharing plans. The employee is often given a certain degree of control over how their contributions are invested, usually choosing from a variety of investment options provided by the plan. This allows the employee to tailor their investment strategy to their own risk tolerance and retirement goals.
The contributions made to a contributory plan are typically tax-deductible, meaning that employees can reduce their taxable income by the amount they contribute to the plan. However, these funds are subject to taxation when withdrawn during retirement. Some contributory plans may also offer the option for employees to make additional voluntary contributions beyond the regular contributions required by the plan.
Common Misspellings for CONTRIBUTORY PLAN
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Etymology of CONTRIBUTORY PLAN
The word "contributory" derives from the Latin word "contributus", which translates to "brought together" or "contributed". The term "contributory" is an adjective that describes something involving contribution or participation.
The word "plan" derives from the Latin word "plānum", which means "level" or "flat surface". Over time, it evolved to encompass the meaning of a design, arrangement, or method for accomplishing a specific goal or objective.
When these two words are combined to form "contributory plan", the etymology refers to a specific type of retirement plan in which both the employer and employees contribute funds towards the plan. The term suggests that multiple parties are participating and contributing together towards a specific goal, which in this case is retirement savings.
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