Final answer:
A pension plan providing retirement income based on employee's earnings and service length is called a defined benefit plan. Defined benefit plans promise a predetermined payout upon retirement, but they are becoming less common as defined contribution plans like 401(k)s gain popularity.
Step-by-step explanation:
A pension plan that provides future retirement income based on the employee's earnings and length of service with the company is termed a defined benefit plan. Traditional pensions are known as defined benefits plans because they promise a fixed nominal dollar amount per year upon retirement, regardless of inflation. However, these traditional plans are increasingly rare, with many companies shifting to defined contribution plans such as 401(k)s and 403(b)s, where employers contribute a set amount to the employee's retirement account, offering more flexibility and portability, while also providing tax-deferred growth potential.