Short answer: A defined-contribution approach means the employer commits a fixed dollar amount per employee toward benefits rather than promising a specific plan, and employees apply that amount to options they choose. An ICHRA is the clearest example; it makes the employer’s cost predictable.
There are two broad ways to fund benefits. Under a defined-benefit approach, the employer picks a plan and pays whatever it costs each year, absorbing renewal increases. Under a defined-contribution approach, the employer commits a fixed dollar amount per employee and lets each person apply it to the coverage they choose.
The clearest example is an ICHRA, where the employer sets a monthly allowance for individual-market coverage. Flexible benefit “wallets” and HSA seeding are lighter versions of the same idea. The appeal is cost predictability for the employer and choice for employees; the trade-off is that employees bear more of the responsibility for choosing and managing their coverage.
Sources
- Employee Benefits KB (Contribution Strategies; Tax-Advantaged Accounts, ICHRA).
Content history
Originally published: June 16, 2026
Last reviewed: June 16, 2026