Final answer:
The statement is a) true; in a defined contribution plan, employer contributions are often tied to the employee's compensation, and these plans offer tax deferral and portability benefits, making them less susceptible to the negative effects of inflation.
Step-by-step explanation:
The statement that under a defined contribution plan, the contribution made on behalf of the employee is determined using a formula dependent on the employee's current compensation is true. In a defined contribution plan, such as 401(k)s and 403(b)s, employers contribute a fixed amount to the worker's retirement account on a regular basis, which is often a set percentage of the employee's pay. Consequently, the absolute amount contributed can indeed vary with the employee's current compensation. These plans are popular as they are tax-deferred and portable, which means employees can take their retirement savings with them when they change employers. The contributions made to these plans are invested by the employee in a variety of investment vehicles. Due to the nature of these investments, retirees can benefit from real rates of return and therefore are not as significantly affected by inflation as they would be with traditional defined benefit pension plans.