Noncontributory plan definition

A noncontributory plan is any pension plan or other type of benefit plan that is paid for entirely by the employer. Participants in the plan are not required to make any payments. Employers frequently set up life insurance noncontributory plans for their employees, though the total amount of coverage tends to be low.

Advantages of Noncontributory Plans

There are several advantages to having noncontributory plans, which are as follows:

  • Benefits low-income employees. The main advantage of a noncontributory plan is that employees incur no expense in exchange for the benefits provided. This can be a major benefit for low-income employees, who might not otherwise be able to afford the associated benefits.

  • Attracts new hires. If properly marketed to job candidates, the presence of noncontributory plans can convince them to accept job offers from the employer. This can result in higher-quality candidates being hired.

  • Retains existing employees. If a noncontributory plan offers major benefits that are critical to employees, then its presence may convince some employees to continue in the employment of the company, rather than looking elsewhere for a job.

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