Final answer:
A pre-authorized investment plan is typically a defined contribution plan like a 401(k) or 403(b) where both employer and employee make regular contributions to a retirement account. These plans are advantageous due to their portability and potential for real rates of return, which counteract inflation.
Step-by-step explanation:
Pre-authorized investment plans refer to a type of defined contribution plan, such as 401(k)s and 403(b)s, where employers contribute a fixed amount to an employee's retirement account on a regular basis, typically with each paycheck. The employee may also contribute to this account. These funds are then invested in a variety of investment vehicles. Such plans offer tax deferral benefits and are portable, meaning they can be carried over when an employee switches employers. A critical advantage of these plans is that they can generate real rates of return, which can protect retirees from the inflation costs that traditional pensioners face.