Final answer:
A pension plan may be 'defined benefit' or 'defined contribution'. Defined benefit plans provide a fixed payout, while defined contribution plans depend on the employee and employer's contributions and investment performance.
Step-by-step explanation:
A pension plan may be either defined benefit or a defined contribution, depending on whether or not employees are required to put funds into the plan. Defined benefit plans are traditional pensions where the employer guarantees a specified monthly benefit at retirement, often calculated through a formula involving salary and years of service, regardless of the performance of the investment pool.
On the other hand, defined contribution plans, such as 401(k)s and 403(b)s, are more prevalent today. In these plans, the employer and often the employee contribute a fixed amount regularly. The funds are invested, and the final benefit depends on the investment's performance. These plans offer portability and are tax-deferred, which helps to shield retirees from inflation costs faced by traditional pensioners.