Final answer:
In 2020, for a defined contribution plan, the annual contributions were capped at the lesser of 100% of an employee's compensation or $57,000.
Step-by-step explanation:
For a defined contribution plan, annual contributions to an employee's account are limited to the lesser of 100% of compensation or $57,000 in 2020. Defined contribution plans such as 401(k)s and 403(b)s are retirement savings plans where the employer makes regular contributions.
These contributions are often matched by the employee and then invested into various investment vehicles. The funds in these plans are tax-deferred and portable, which means they can move with an employee from one job to another. The investments aim to generate returns that can help retirees deal with inflation, differing from traditional pensions.