Final answer:
A plan where an employer contributes a specified amount to a retirement account is known as a defined contribution pension plan. Unlike defined benefit plans that provide a fixed income, these plans offer growth potential to combat inflation.
Step-by-step explanation:
A plan in which the employer's contribution to employees' retirement savings funds is specified is known as a defined contribution pension plan.
In a defined contribution plan, such as 401(k)s and 403(b)s, employers contribute a fixed amount to the employee's retirement account on a regular basis, alongside the employee's own contributions. This money is invested in a variety of investment vehicles. The plans are tax deferred and portable, meaning they can be transferred to a new employer if the individual changes jobs. Crucially, these contributions can grow through investment returns, potentially offsetting the effects of inflation over time, unlike traditional fixed pensions, which are referred to as defined benefit plans.